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A Primer of Political Economy 



A Primer 



OF 



Political Economy 



IN SIXTEEN DEFINITIONS AND 
FORTY-ONE PROPOSITIONS 



BY 

ALFRED BISHOP MASON, A.B., M.A. 

Translator and Editor of Van Hoist's Constitutional La<w 

of the United States and of Vols. I and III of 

Van Hoist's Constitutional History 

of the United States 




CHICAGO 

A. C. McCLURG & CO. 

1914 



*>* 






Copyright 

A. C. McClurg & Co. 

1914 



Published January, 1914 



JAN 26 1914 



(S-CI.A3G, . 



5v. 



To My Beloved Son 
Macdonell Mason 



PREFACE 

This little book makes no claim beyond that 
expressed in its title. It is simply a primer. 
It is based upon the Primer of Political 
Economy, written by the author with the 
valued aid of the late Mr. John J. Lalor. This 
ran through twelve editions. It has now been 
revised, enlarged, and brought down to date. 

I hope this book may be used as a textbook 
in the common schools of the country. The 
time that can be allotted to the study of politi- 
cal economy in these schools is so short that no 
larger book can be even superficially mastered. 
The Primer, on the contrary, can be thoroughly 
learned without any undue interference with 
the other studies of the course. While it is 
designed for use as a textbook, I trust that 
persons out of school may read it with pleas- 
ure and profit. 

Mr. Lalor' s experience for several years in 
teaching political economy to boys and girls 
convinced me that the arrangement by defi- 



A PRIMER OF POLITICAL ECONOMY 

nitions and propositions is the best for school 
purposes. The pupil should be required to 
memorize the definitions and the captions of 
the propositions, but mere memorizing should 
not be carried beyond this. It is better that the 
explanation of the definitions and the proof of 
the propositions be given in the pupil's own 
words. One of the best tests of knowledge is 
to ask for original illustrations. 

Political economy has been called the dismal 
science. It is, in fact, the joyous science, for 
it points the way to national well-being and to 
human happiness. 

Alfred Bishop Mason 

New York City. 



VI 



TABLE OF CONTENTS 



Definition jr. Political Economy is the science which 
teaches the laws that regulate the production, dis- 
tribution, and exchange of wealth I 

Definition 2. Wealth is anything for which some- 
thing can be got in exchange I 

Definition 3. A commodity is wealth in tangible 
form 2 

Definition 4. Capital is wealth saved, and used in 
production 2 

Proposition I. To produce wealth three things are 
required — natural agents, capital, and labor 3 

Proposition II. Natural agents which are limited in 
quantity are wealth; and those which are practi- 
cally unlimited are not wealth 5 

Definition 5. Capital is divided into fixed and circu- 
lating 6 

Proposition III. The proportion of fixed to circu- 
lating capital depends upon the way in which capi- 
tal is used 8 

Proposition IV. The stock of capital is kept up by 
constant reproduction 9 

Proposition V. The amount of capital used meas- 
ures the amount of labor employed 10 

Definition 6. Demand for a thing consists of desire 
to buy it, on the part of persons who have some- 
thing to give in exchange for it 12 

Definition 7. Supply of a thing consists of a desire 
to sell it, on the part of persons who possess it. . . 12 

vii 



TABLE OF CONTENTS 

Proposition VI. Supply in excess of demand causes 
prices to fall, and demand in excess of supply- 
causes prices to rise 13 

Proposition VII. A demand for a thing tends to 
produce a supply of that thing at a fair price 14 

Definition 8. Consumption is productive or unpro- 
ductive 16 

Proposition VIII. Productive consumption benefits 
labor 17 

Proposition IX. Unproductive consumption hurts 
labor 17 

Proposition X. The division of labor increases its 
efficiency 19 

Definition 0. The part of capital which is, or might 
be, used to pay labor is called the wage-fund 23 

Proposition XI. The possible wage fund varies 
with production 24 

Proposition XII. The real wage fund varies ac- 
cording to the first law of supply and demand.... 25 

Proposition XIII. Wages are lower in an agreeable 
than in a disagreeable, in an easily-learned than in 
a difficult, and in a steady than in an unsteady, 
employment 27 

Proposition XIV. The average wage of labor is 
equal to the quotient got by dividing the real wage 
fund by the number of persons employed 28 

Proposition XV. The test of the highness of wages 
is their purchasing power 29 

Proposition XVI. Wages can be raised only by in- 
creasing the real wage fund or by lessening the 
number of persons employed 30 

Proposition XVII. The use of labor-saving ma- 
chinery benefits labor 35 

viii 



TABLE OF CONTENTS 

Proposition XVIII. High wages often make high 
profits 37 

Definition 10. A strike is a conspiracy of employees 
against employers, by which the former refuse to 
work unless the latter yield to their wishes 41 

Definition 11. A lock-out is a conspiracy of employ- 
ers against employees, by which the former refuse 
to give the latter work unless the employees yield 
to their wishes 41 

Proposition XIX. Usually it is bad policy to strike 41 

Proposition XX. It is to the advantage of both em- 
ployers and employees to settle their disputes by 
arbitration 46 

Proposition XXI. The best way to produce wealth 
is by cooperation 49 

Proposition XXII. Trade-union funds can be best 
used in promoting cooperation 59 

Proposition XXIII. Wealth, when produced, is di- 
vided into rent, profits, and wages 62 

Proposition XXIV. Wealth is sometimes shared be- 
tween three classes, and sometimes between two, 
and is sometimes absorbed by one 64 

Proposition XXV. The first law of supply and de- 
mand fixes the proportion of rent, profits, and 

wages to each other 65 

Definition 12. Value is purchasing power 66 

Definition 13. Price is value expressed in money 66 

Proposition XXVI. There cannot be a general rise 
or fall in values 66 

Proposition XXVII. There may be a general rise 
or fall in prices 68 

Proposition XXVIII. The value of a thing depends 
upon the cost of its production 69 

ix 



TABLE OF CONTENTS 

Proposition XXIX. In every fair bargain, both 
parties gain 70 

Proposition XXX. The first method of exchange, 
barter, is unfit for use in a civilized community... 71 

Proposition XXXI. The great instrument of ex- 
change is money 73 

Proposition XXXII. Money is the measure of 
values 74 

Proposition XXXIII. Money in specie is like all 
other commodities 74 

Proposition XXXIV. Gold makes the best money., 75 

Proposition XXXV. Paper money, not convertible 
into specie at par, is an evil 78 

Proposition XXXVI. The worse currency drives 
out the better 82 

Proposition XXXVII. Credit is not capital 83 

Proposition XXXVIII. A commercial crisis is 
caused by the destruction, that is the unproductive 
consumption, of wealth 85 

Proposition XXXIX. The effects of a commercial 
crisis can be removed only by the production of 
wealth 89 

Definition 14. A tax is a sum of money collected by 
a government from persons or property within its 
dominions 90 

Definition 15. Duties are taxes on imported goods, 
that is, on goods brought from other countries.... 90 

Definition 16. A tariff is a law fixing duties 90 

Proposition XL. A tariff should be for revenue 
alone 91 

Proposition XLI. The best tax is the Single Tax.. 97 



A 
PRIMER OF POLITICAL ECONOMY 



A Primer of Political Economy 



Definition i. Political Economy is the science 
which teaches the lazvs that regulate the pro- 
duction, distribution, and exchange of wealth. 

Everything in this world is governed by law. 
Human laws are those made by men. All others 
are natural laws. A law providing for the educa- 
tion of children in schools is a human law. The 
law that children shall keep growing, if they live, 
until they are men or women, and shall then 
slowly decay and at last die, is a natural law. 
An apple falls from a tree and the earth moves 
around the sun in obedience to natural laws. The 
laws which regulate the production, distribution, 
and exchange of wealth are of both kinds. The 
more important ones, however, are natural. 

Definition 2. Wealth is anything for which 
something can be got in exchange. 

Many useful things are not wealth. Air is one 
of the most useful things in the world. A person 
deprived of it would die. Water is a very useful 
thing, too. But air and water are not wealth, 
because they can be got without giving anything 
in exchange for them. Sometimes, however, each 
of them may be wealth. If a man had to live in 
a diving-bell, he would have to pay in some way 



A PRIMER OF POLITICAL ECONOMY 

for the air sent down in pipes for him to breathe. 
In a desert, a little bottle of water will sell for 
a good deal. Men sometimes pay for the right 
to use the water of a stream to turn a mill wheel. 
In these cases, the air and the water are wealth, 
because something can be got in exchange for 
them. 

In order to tell whether or not any particular 
thing is wealth, we must ask, " Can something be 
got in exchange for it?" If something can, then 
it is wealth. 

A coat is wealth. So are houses, corn, dia- 
monds, a doctor's skill, money, shovels, the ability 
to make furniture, furniture itself, bricks, and 
thousands of other things. 

Definition 3. A commodity is wealth in tan- 
gible form. 

The list just given of things that are wealth 
contains some things that are commodities and 
some that are not. 

A coat, a house, corn, a diamond, money, a 
shovel, furniture, and a brick are commodities, 
because they are wealth in a form which can be 
touched. 

A doctor's skill and the ability to make furni- 
ture cannot be touched. Therefore they are not 
commodities, although they are wealth. 

Definition 4. Capital is wealth saved, and used 
in production. 

It is important to remember that capital is 
wealth that is (1) saved, and (2) used in pro- 

2 



A PRIMER OF POLITICAL ECONOMY 

duction. Land is wealth, but it is not capital, 
because, although it is used to produce crops, 
nobody has saved it. So $10,000 in money locked 
up in a safe is wealth, but it is not capital, be- 
cause, although somebody has saved it, it is not 
used to produce more wealth. 

Food eaten by men who work is capital. Money 
used to pay the wages of workmen is capital. 
Tools are capital. 

Land is a natural agent, like water, air, the 
force of gravitation, etc. It is the most impor- 
tant of all the natural agents. 



PROPOSITION I 

To produce wealth three things are required — nat- 
ural agents, capital, and labor 

The production of vegetable food needs, first, 
a natural agent in the shape of the land on 
which the food grows; second, the labor of 
clearing, fencing, plowing, digging and plant- 
ing the land and of gathering the crops, and 
perhaps, as in the case of wheat, the labor of 
grinding the grain into flour and of cooking it 
afterwards; and, third, capital in the shape of 
the tools used in all these occupations, the seed 
employed in planting, the clothing and the .food 
consumed by the laborers, etc. 

In the production of a doctor's skill, the prin- 



A PRIMER OF POLITICAL ECONOMY 

cipal natural agent is again the land. This has 
produced most of the food which the body must 
consume in order to exist while the mind gains 
the required skill. The capital is the food and 
clothing consumed by the doctor while study- 
ing, the cost of providing him with shelter, 
and the money paid for his tuition. The labor 
is that spent in teaching him and in caring for 
him from the day of his birth. 

In the production of linen, the natural agents 
directly at work are the land on which the 
manufactory stands and on which the raw 
material (flax) grew and the power which 
makes the machinery go. This power may be 
the air, turning a windmill; or heat, acting on 
water in a boiler and so creating steam; or 
water turning a water-wheel. The labor is that 
spent in raising the flax and that of the men, 
women, and children who spin thread from the 
flax and weave the thread into linen cloth, and 
also that of the persons who built the manu- 
factory and invented and made the machinery, 
and, again, that of the persons who now man- 
age the works. The capital consists of the 
building, the machinery, the money used in pay- 
ing wages, the flax consumed, etc. 



A PRIMER OF POLITICAL ECONOMY 

Thus, in these three very different cases, the 
production of wealth requires natural agents, 
capital, and labor. No case of production can 
be imagined in which these three forces do not 
combine. But a law to which no exception can 
be found may be taken as true. 

Therefore, to produce wealth, three things 
are required — natural agents, capital, and 
labor. 

PROPOSITION II 

Natural agents which are limited in quantity, are 
wealth; and those which are practically unlimited, 
are not wealth 

If anything is unlimited in quantity, anyone 
who wishes it can get it. Air is an example. 
Everybody can get it free, and therefore nobody 
will give anything in exchange for it. But if 
a person could get control of all the air and 
take it away from everybody else, he could get 
a great deal in exchange for it, because people 
would have to have it or die. Therefore, if air 
were limited in quantity, it would be wealth. 

In thickly-settled countries, land is strictly 
limited in quantity; none of it is left unowned, 
and therefore none of it can be got free. Every 



A PRIMER OF POLITICAL ECONOMY 

acre of it is wealth. Something can be got in 
exchange for it. In unsettled countries, how- 
ever, land is practically unlimited in quantity. 
That is, there is more of it there than anybody 
wants. A man who owned one of a hundred 
similar islands near the North Pole could not 
exchange it for anything, because anyone who 
wished an island in that neighborhood could 
get another as good as his for nothing. 

Water is usually practically unlimited in 
quantity. Two cases have been mentioned 
(see explanation of Def. 2) in which water is 
limited in quantity. In both these cases, some- 
thing can be got in exchange for it. Therefore, 
when limited, it is wealth. 

We see, then, that the same natural agent is 
sometimes wealth and sometimes not wealth, 
according as it is limited or unlimited in 
quantity. 

Therefore, natural agents which are limited 
in quantity are wealth, and those which are 
practically unlimited are not wealth. 

Definition 5. Capital is divided into fixed and 
circulating. 

Capital is used in two ways. It is fixed in 
buildings, machinery, tools, the permanent im- 

6 



A PRIMER OF POLITICAL ECONOMY 

provements of land (such as drainage), canals, 
railroads, etc. It circulates when used in paying 
wages, buying raw material (like flax for the 
manufacture of linen), etc. 

Fixed capital lasts a long time. The things pro- 
duced by its aid use up only a small part of it, 
year after year. If a manufacturer of linen has 
a building, machinery, etc., this fixed capital can 
be employed in the manufacture of very many 
thousands of yards of linen before it is worn out. 
Still, the production of each yard wears out the 
works a very little. 

Circulating capital is all used up by being used 
once. When the manufacturer produces a yard 
of linen, he has entirely parted with the flax in 
it and with the labor spent upon the flax. When 
he sells the piece of cloth, he must get enough 
for it to replace all he has spent for these two 
things and to pay for the part of his fixed capital 
which has been used up in the manufacture, and, 
if possible, to yield him a profit. 

Thus the product must repay all the circulating 
capital and part of the fixed capital used in its 
production. 

A crop of corn, in order to give the farmer a 
profit, must sell for more than the cost of the 
seed sown and the labor spent in preparing the 
ground and in sowing and gathering the grain, 
plus an amount equal to the harm done to the 
fencing, drainage, etc. 



A PRIMER OF POLITICAL ECONOMY 
PROPOSITION III 

The proportion of fixed to circulating capital 
depends upon the way in which capital is used 

If a shirt manufacturer hires a number of 
women to sew for him at their homes, his capi- 
tal is almost entirely circulating. He uses 
nearly all of it in buying cloth, thread, buttons, 
etc., and in paying wages. If he builds a large 
manufactory and stocks it with machinery and 
has his employees work there, a much larger 
part of his capital becomes fixed. 

A very large proportion of the capital of a 
railway company is fixed in the shape of road- 
bed, rails, cars, locomotives, car-shops, and sta- 
tions. A very small part of the capital of a 
dealer in coal is fixed. He needs only a yard 
in which to store his stock, a few teams, and a 
small office. His main use for his capital is in 
buying coal at the mines, defraying the cost of 
its transportation, and paying the wages of his 
employees. 

A similar analysis of any other business 
would show that the capital used in it was 
divided into fixed and circulating, according to 
the nature of the particular industry. 

Therefore, the proportion of fixed to cir- 

8 






A PRIMER OF POLITICAL ECONOMY 

culating capital depends upon the way in which 
capital is used. 

PROPOSITION IV 

The stock of capital is kept up by constant repro- 
duction 

The definition of capital (Def. 4) shows that 
it must be used in order to be capital. Using 
it destroys it. This is true of both circulating 
and fixed capital. 

When a yard of linen is manufactured, the 
flax in it, as flax, no longer exists. The food 
consumed by the workmen who made it no 
longer exists. The flax and the food are cir- 
culating capital. Using them has destroyed 
them. 

A building, which is fixed capital, is not used 
up by being used once, but it is gradually worn 
out by use. It has to be repaired constantly. 
If the repairs are neglected, it finally tumbles 
down. 

The only difference, in this respect, between 
fixed and circulating capital is that the first is 
destroyed bit by bit whenever it is used, while 
the second is entirely destroyed whenever it is 
used. A spade, which is fixed capital, may be 



A PRIMER OF POLITICAL ECONOMY 

used to dig a great many potatoes out of the 
ground, but part of it is worn away each time. 
A potato, which is circulating capital, can be 
used only once, and then it is wholly consumed. 

Now if the yard of linen is not worth more 
than all the capital destroyed in making it, the 
world's stock of capital is less than it would 
have been had the linen not been made. But if 
the linen is worth more than all the capital 
destroyed in making it, then the capital has 
been more than reproduced, and the world's 
stock of it has been increased. 

As capital must (Def. 4) be used in produc- 
tion, and as using it always destroys it, it is 
evident that the only way to* keep up the stock 
of capital is to use it so that it will produce, 
by the time it is destroyed, at least an equal 
amount of capital. 

Therefore, the stock of capital is kept up by 
constant reproduction. 

PROPOSITION V 

The amount of capital used measures the amount 
of labor employed 

To produce wealth (Prop. I), both capital 
and labor are required. Therefore, in order 

10 



A PRIMER OF POLITICAL ECONOMY 

that labor may be employed, capital must be. 
The more capital, the more labor. For capi- 
tal cannot produce wealth unless labor works 
with it. 

The reason why capital measures labor, 
instead of labor's measuring capital, is that 
the capitalist takes the first step in production 
by providing buildings, machinery, tools, and 
usually raw materials. Then, but not till then, 
labor takes up the task. Capital must act first, 
and labor second. Until capital acts, labor can- 
not. Therefore, labor has to wait for capital to 
begin, and is dependent upon capital for 
employment. 

Labor also depends upon capital for support 
while being employed. The capitalist advances 
to the laborer, in the shape of wages, the food, 
clothing, shelter, etc., needed by the latter, and 
finally repays himself for the advance out of 
the proceeds of the wealth the laborer has 
helped to produce. A manufacturer of jewelry, 
for instance, first uses his capital in providing 
a suitable workroom and the necessary tools. 
Then he buys the needed gold and the other raw 
materials. Then he hires labor. The amount 
of labor he engages must depend upon the size 

11 



A PRIMER OF POLITICAL ECONOMY 

of his workroom, the number of his toois, and 
the quantity of gold, etc., which he has to be 
made into ornaments. These things all depend 
upon the amount of capital he has invested. 
Moreover, before he can sell anything it must 
be manufactured. While it is being manu- 
factured he must pay out money to his work- 
men without getting any money from his cus- 
tomers. In order to do this he must have 
capital. 

Therefore, since labor is employed by capital, 
and supported by capital, the amount of capital 
used measures the amount of labor employed. 

Definition 6. Demand for a thing consists of 
a desire to buy it, on the part of persons who 
have something to give in exchange for it. 

Definition 7. Supply of a thing consists of a 
desire to sell it, on the part of persons mho 
possess it. 

Thus a demand for cotton consists of the desire 
to buy cotton in the minds of persons who have 
money or something else to give in exchange for 
the cotton. If they have no money and no pur- 
chasing power in any other form, however much 
they may want cotton, there is no demand for it 
in the politico-economical meaning of the word. 

So a supply of cotton consists of a desire to sell 

12 



A PRIMER OF POLITICAL ECONOMY 

cotton, in the minds of persons who have cotton 
to give in exchange for money or any other 
commodity. 

PROPOSITION VI 

Supply in excess of demand causes prices to fall, 
and demand in excess of supply causes prices 
to rise 

When the supply of anything exceeds the 
demand for it each person who wishes to sell 
the particular thing will be afraid that his stock 
of it will be the portion of the supply which the 
demand will not reach. He will, therefore, put 
down his prices in order to induce buyers to 
take his wares instead of those of his neighbor. 
Each seller will do this, consequently general 
prices will fall. If there is a demand for nine 
brooms, and a supply of ten, each broom-seller 
will fear that one of his brooms will be left on 
his hands. To prevent this, he will mark down 
his prices; therefore, brooms will be cheaper. 
Hence, greater production and greater cheap- 
ness go hand in hand. 

When demand for anything exceeds supply 
of it each person who wishes to buy the par- 
ticular thing will be afraid that the whole sup- 
ply of it will be absorbed by other buyers, and 

13 



A PRIMER OF POLITICAL ECONOMY 

that he will not be able to get what he wants. 
He will therefore offer more in exchange for it, 
in order to induce the owner to sell to him 
instead of to his neighbor. Each buyer will do 
this; consequently, general prices will rise. If 
five persons want horses, and there are only 
four horses for sale, each of the five will be 
willing to pay something extra rather than not 
have any horse at all. The highest four bidders 
will get the four horses; therefore, horses will 
be dearer. Hence, scanty production means 
dear goods. 

This demonstration proves the " first law of 
supply and demand" — namely, supply in excess 
of demand causes prices to fall, and demand in 
excess of supply causes prices to rise. 



PROPOSITION VII 

A demand for a thing tends to produce a supply of 
that thing at a fair price 

If there is a demand for anything, it will pay 
capitalists to use their capital in supplying that 
thing; they will therefore do so. If the profits 
they make are very large, other capitalists will 
be tempted to go into the business. Then com- 
petition between the manufacturers (Prop. VI) 

14 



A PRIMER OF POLITICAL ECONOMY 

will cut down the price of the article. It will 
not, however, cut it down, except temporarily, 
below a fair price, that is, a price which will 
pay for the natural agents, capital and labor 
expended upon its production. For if the price 
falls below this limit, capital will be withdrawn 
from the industry. This will diminish the pro- 
duction. The resulting scarcity of the thing 
(Prop. VI) will raise its price again. 

When bicycles were first offered for sale, 
men, women, and children wanted them. The 
demand was in excess of the supply. Prices 
were, therefore, high. A bicycle that cost less 
than $25 to make sold readily for $100. Many 
men began making them. The prices fell. 
Then people became weary of riding them. 
Prices fell still more — to about $15. Then 
manufacturing slackened. Now there is a fair 
demand for a certain annual output; and the 
bicycle is sold at a fair profit for about $20. 

So a good automobile can now be bought at 
about one-third of the price of an inferior one, 
a few years ago. 

In the case of things — such as the paintings 
of a dead artist — which are strictly limited in 
quantity, demand cannot produce a supply at a 

15 



A PRIMER OF POLITICAL ECONOMY 

fair price, because the necessary supply cannot 
be produced, no matter how much capital and 
labor are spent in the effort. But in the case 
of all things which can be produced in any 
quantity — that is, in the case of nearly every- 
thing — this proposition applies. 

Hence, we have the "second law of supply 
and demand" — namely, a demand for a thing 
tends to produce a supply of that thing at a 
fair price. 

Definition 8. Consumption is productive or 
unproductive. 

Consumption which increases the productive 
powers of the community is productive. Needed 
food eaten by a man who works is productively 
consumed. The iron which is melted and then 
made into a rail which is afterwards used, is pro- 
ductively consumed. So are the tiles used in 
draining a farm. 

Consumption which does not increase the pro- 
ductive powers of the community is unproductive. 
The food and clothing of an idler are unproduc- 
tively consumed. If a workingman, who needs 
only a pound of food a day, eats a pound and a 
half, the extra half-pound is unproductively con- 
sumed. Iron melted and flung away is unpro- 
ductively consumed. Silks, velvets, and laces are 
usually unproductively consumed. So is to- 
bacco. So is alcoholic drink. 

16 



A PRIMER OF POLITICAL ECONOMY 

PROPOSITION VIII 
Productive consumption benefits labor 

Productive consumption (see explanation of 
Def. 8) increases the productive powers of the 
community. Increasing the productive powers 
of a community increases its stock of wealth. 
The larger this is, the greater is apt to be the 
capital of the community. And if more capital 
is used, more labor (Prop. V) is employed. 
Hence, productive consumption causes a greater 
employment of labor. 

Therefore productive consumption benefits 
labor. 

PROPOSITION IX 

Unproductive consumption hurts labor 

When anything is consumed without increas- 
ing the productive powers of a community, that 
community's stock of wealth is decreased by 
just the value of the thing thus consumed. If 
one thousand people each eat one- fourth of a 
pound more food per day than they need, the 
community's stock of wealth suffers a needless 
loss of two hundred and fifty pounds of food 
a day. 

17 



A PRIMER OF POLITICAL ECONOMY 

Unproductive consumption decreases a com- 
munity's stock of wealth. If a country's 
wealth is lessened, the country's capital is apt 
to be less. But the less capital (Prop. V), the 
less labor. 

Suppose a man pays $250 a year for food, 
one-fifth of which he does not need, and there- 
fore consumes unproductively. If he stops this 
unproductive consumption, the capital and labor 
employed in producing the $50 worth of food 
now wasted will be used in producing something 
else for which there is a demand, say shoes. 
The man will have the $50 he saves every year 
to use in producing a third thing, say books. 
Then the community will still have all the food 
it needs, and will have besides, as the result 
of this stoppage of unproductive consumption, 
more shoes and more books, of neither of which 
did it have enough before. 

In this case, the price of food remains the 
same, because the demand has diminished with 
the supply. The prices of both shoes and books 
are lower, because (Prop. VI) the supply has 
increased. 

There was only one fund used in production, 
that is, in hiring labor. This was the fund used 

18 



A PRIMER OF POLITICAL ECONOMY 

to produce the extra food. This fund still 
exists, and is used to produce shoes. But now 
there is another fund, which is used to produce 
books. There are, therefore, since the unpro- 
ductive consumption ceased, two funds used in 
hiring labor where there was only one before. 
So the stoppage of unproductive consumption 
has benefited labor. 

Therefore, unproductive consumption hurts 
labor. 

PROPOSITION X 
The division of labor increases its efficiency 

It would be a waste of labor and time for the 
farmer, after having harvested his wheat, to 
carry it to the mill, grind it himself into flour, 
take the flour to the city, then bake it into 
bread, and then carry the loaf around in search 
of a buyer for it. The farmer knows how to 
farm and has the needed tools. He does not 
know how to run a mill, or a railroad, or a 
bakery, and he has none of the necessary 
machinery. His labor can therefore be best 
used on the farm. If he can earn $5 by work- 
ing five days, one as a farmer, one as a miller, 
one as a carrier, one as a baker, and one as a 

19 



A PRIMER OF POLITICAL ECONOMY 

peddler, his labor during the same five days on 
the farm would probably be worth two or three 
times that sum. Moreover, if he confines him- 
self to farming, he has to buy only one set of 
tools and can keep them almost constantly in 
use, so that his capital does not lie idle. If he 
pursued five trades, he would have to have five 
different sets of tools, and four sets would have 
to lie idle all the while. Therefore, both capital 
and labor can be best employed where labor is 
divided. 

This is true also within the limits of one 
trade. Adam Smith, the first great political 
economist, gives the following illustration of 
the efficiency produced by the division of labor: 
" The business of making a pin is divided into 
about eighteen distinct operations. One man 
draws out the wire, another straightens it, a 
third cuts it, a fourth points it, a fifth grinds it 
at the top for receiving the head; to make the 
head requires two or three distinct operations; 
to put it on is a peculiar business ; to whiten the 
pins is another; it is even a trade by itself to 
put them into the paper. I have seen a 
small manufactory where ten men only were 
employed, and where some of them conse- 

20 



A PRIMER OF POLITICAL ECONOMY 

quently performed two or three distinct opera- 
tions. 

"But although they were very poor, and 
therefore but indifferently accommodated with 
the necessary machinery, they could, when they 
exerted themselves, make among them about 
twelve pounds of pins in a day. There are in 
a pound upwards of four thousand pins of a 
middling size. Those ten persons, therefore, 
could make among them upwards of forty-eight 
thousand pins in a day. Each person, therefore, 
making a tenth part of forty-eight thousand 
pins, might be considered as making four thou- 
sand eight hundred pins in a day. But if they 
had all wrought separately and independently, 
and without any of them being educated to this 
peculiar business, they certainly could not each 
of them have made twenty, perhaps not one, 
pin in a day." 

There are five reasons why the division of 
labor increases its efficiency. 

First, the individual workman acquires more 
dexterity by doing the same thing many times 
than by doing many things a few times. A 
man will be a better blacksmith if he works at 
that trade every day than if he gives half the 

21 



A PRIMER OF POLITICAL ECONOMY 

week to blacksmithing and half to some other 
trade; 

Second, the time lost by passing from one 
employment to another is saved by the division 
of labor. In pin-making, if the man who 
straightened the wire cut it afterwards, he 
would have to drop one set of tools and take 
up another. He might have to move from one 
part of the shop to another. The time spent in 
doing so would amount to some days in the 
course of a year; 

Third, it is unnecessary, when labor is prop- 
erly divided, to buy tools that are used only 
part of the time. In the case just given, the 
tools used in straightening the wire would lie 
idle while the wire was being cut, and vice 
versa. But when two men have charge of these 
two processes, both sets of tools are used all 
the while; 

Fourth, when labor is divided, the light parts 
can be given to weak persons, such as women 
and children, and the heavy parts to strong 
men. Thus each employee can be given the 
work best suited to his or her powers ; 

Fifth, when a workman does one thing con- 
stantly, he is more apt to invent some new and 

22 



A PRIMER OF POLITICAL ECONOMY 

better method of doing it than he would be 
were his attention divided among a number of 
processes. 

Labor can be advantageously divided to any 
extent, as long as each employee has all his time 
occupied. 

There are two disadvantages to the indi- 
vidual laborer in the division of labor. First, 
his work is more monotonous, and therefore 
may be less pleasant. Second, he can do only 
one small thing well, and therefore has more 
difficulty in finding work when out of employ- 
ment. 

These disadvantages, however, decrease the 
efficiency of labor very little. The advantages 
far outweigh them. 

Therefore, the division of labor increases its 
efficiency. 

Definition 9. The part of capital which is, or 
might be, used to pay labor is called the wage 
fund. 

The part which is so used is the real wage fund. 
The part that might be so used, that is, the part 
which capitalists could afford to give in exchange 
for labor, is the possible wage fund. The dis- 
tinction is important. 

23 



A PRIMER OF POLITICAL ECONOMY 

A manufacturer may pay $100,000 a year in 
wages, and make a profit of $25,000 for himself. 
Rather than have his capital lie idle, he would 
probably be willing to pay $110,000 in wages, and 
clear only $15,000. In this case the real wage 
fund is $100,000, and the possible wage fund is 
one-tenth more, or $110,000. 

The real wage fund can never exceed the pos- 
sible one, but it may fall below it. Workmen, 
through ignorance or lack of combined effort, 
may receive less than their employers could afford 
to pay. 

PROPOSITION XI 
The possible wage fund varies with production 

If production increases, the possible wage 
fund increases, and vice versa. 

The wage fund can never exceed the sum 
which the capitalist is willing to give in ex- 
change for labor, because he will cease to use 
his capital rather than expend more than this 
in wages. But since the wages paid by the 
capitalist are repaid him by the sale of the 
product, the more valuable the product is, the 
more he will be willing to give in exchange for 
labor. 

Therefore, as the product increases in value, 
the greater will be the possible wage fund. And 

24 



A PRIMER OF POLITICAL ECONOMY 

as the product decreases in value, the less will 
be the possible wage fund. 

Suppose a knife manufacturer pays $i for 
labor which produces, in a day, two knives 
worth $i apiece. If the workman labors with 
greater energy or care and so produces $2.50 
worth of knives every day, the manufacturer 
will be willing to pay a higher price for his 
labor, because it will be worth more than it was 
before. But if the workman becomes lazy or 
careless and produces only $1.50 worth of 
knives every day, the manufacturer cannot 
afford to pay him as high wages as he did 
before, and will therefore cut down his wages. 

Therefore, the possible wage fund varies 
with production. 

PROPOSITION XII 

The real wage fund varies according to the first law 
of supply and demand 

Wages are the price paid for labor. We have 
seen (Prop. VI) that prices depend upon the 
ratio of demand and supply. If demand 
exceeds supply, prices rise. If supply exceeds 
demand, prices fall. At any given time, there 

25 



A PRIMER OF POLITICAL ECONOMY 

is a demand for labor, represented by the capital 
seeking investment, and a supply of labor rep- 
resented by the men, women and children seek- 
ing employment. The ratio between the two 
fixes (Prop. VI) the rate of wages. 

For if the capital seeking investment is small, 
and the number of people offering their labor 
is large, the latter will compete with each other 
for employment and will be willing to work for 
very little rather than get nothing to do. There- 
fore, wages will be low. If the capital seeking 
investment is large and the number of possible 
laborers small, the capitalists will compete with 
each other for the chance of employing labor, 
and will be willing to give high wages rather 
than have their capital lie idle. Therefore, 
wages will rise. 

The reason that wages increase with the 
skill, morality, and trustworthiness of the in- 
dividual laborer is that the demand for such 
labor is in excess of the supply. 

When the Grand Trunk railway was being 
built in Canada, English masons were sent to 
that country. They had earned 5^. a day in 
England. For doing the same work in Canada 
they got ys. 6d. a day. It cost them no more 

26 



A PRIMER OF POLITICAL ECONOMY 

to live in one country than in the other. The 
Canada wages were therefore i l /2 times as high 
as the English wages. The reason of the dif- 
ference was that there was a greater demand 
for masons, in proportion to the supply of 
masons, in Canada than in England. 

Therefore, the real wage fund varies accord- 
ing to the first law of supply and demand. 

PROPOSITION XIII 

Wages are lower in an agreeable than in a disagree- 
able, in an easily-learned than in a difficult, and 
in a steady than in an unsteady, employment 

Persons, in choosing their trades and profes- 
sions, are apt to take the most agreeable employ- 
ment, the one that seems to them easiest to 
learn, and the one which apparently offers 
them the most constant work. The result is 
that the supply of labor in the employments 
that are disagreeable, hard to learn, and uncer- 
tain, is much less than the supply of labor in 
more favored industries. It is therefore more 
apt to be insufficient to meet the demand. Con- 
sequently (Prop. XII) its wages are apt to be 
higher. 

Scavengers get high wages because their 

27 



A PRIMER OF POLITICAL ECONOMY 

work is very disagreeable; engravers get them 
because their work is hard to learn ; and plumb- 
ers get them because their work is very uncer- 
tain, now brisk and now dull. 

Therefore, wages are lower in an agreeable 
than in a disagreeable, in an easily-learned than 
in a difficult, and in a steady than in an 
unsteady, employment. 

PROPOSITION XIV 

The average wage of labor is equal to the quotient 
got by dividing the real wage fund by the number 
of persons employed 

If the daily wage fund of an employer is 
$100, and he hires fifty men, it is evident that 
he must pay them an average wage of $2, which 
is the quotient of the wage fund ($100) 
divided by the number of men employed (50). 
This will be equally true if the wage fund is 
that of a country instead of one man, is yearly 
instead of daily, and is counted by millions 
instead of tens of dollars, and if the laborers 
are many thousands instead of few in number. 
Since the real wage fund (Def. 9) is the money 
actually paid to laborers, the part of it paid to 
each laborer, on an average, must be equal to 

28 



A PRIMER OF POLITICAL ECONOMY 

the whole divided by the number of wage 
getters. 

Therefore, the average wage of labor is equal 
to the quotient got by dividing the real wage 
fund by the number of persons employed. 



PROPOSITION XV 

The test of the highness of wages is their purchas- 
ing power 

If the wages of A will buy more than the 
wages of B will, A's wages are higher than 
those of B, although they may not contain as 
many dollars and cents. Thus, if A, in New 
York, gets $3 a day, and B, in California, is 
paid $4 a day, and if clothing, food, rent, etc., 
are twice as dear in California as in New York, 
$3 in New York will buy as much as $6 in 
California, and therefore A can earn as many 
necessary things in a day as B can in one and 
a half days. Hence A's wages are higher than 
B's, although he gets $1 less a day. 

Suppose John Smith, an English carpenter, 
earns four shillings ($1) a day, and John 
Brown, an American, earns $2 a day. Sup- 
pose, too, that a suit of clothes costs $6 in Eng- 

29 



A PRIMER ( 

land and $15 in America. Then Smith's 
wages, reckoned in clothes, are larger than 
Brown's ; for Smith can earn a suit in six days, 
while Brown has to work seven days and a half 
in order to earn it. If other necessaries are as 
cheap in England as clothes are, then Smith's 
wages, reckoned in anything except money, are 
larger than Brown's. 

To compare wages, then, we must first find 
out how much money each laborer gets, and 
then how much that amount of money will buy. 
The man who can buy the most has really the 
highest wages, no matter how low they may be 
in dollars and cents. 

Therefore, the test of the highness of wages 
is their purchasing power. 

PROPOSITION XVI 

Wages can be raised only by increasing the real 
wage fund or by lessening the number of persons 
employed 

This is evident, because (Prop. XIV) wages 
are the quotient of the real wage fund divided 
by the number of men employed, and the quo- 
tient can be increased only by increasing the 
dividend, or by diminishing the divisor. 

30 



A PRIMER OF POLITICAL ECONOMY 

In this case, the dividend may be increased 
in four ways : 

First, when the real wage fund (see expla- 
nation of Def. 9) is the same as the possible 
wage fund, an increase in production may be 
caused by increased energy on the part of the 
laborers. This (Prop. XI) will increase the 
possible wage fund. The laborers can then 
persuade, or perhaps by united action compel, 
the employer to advance the real wage fund as 
far as the possible wage fund has advanced. 
Suppose a farmer can afford to use four-tenths 
of his annual crop in paying his laborers, and 
does so. If the crop is worth $100, the labor- 
ers will get $40. If they work so hard that 
they produce a crop worth $200, the possible 
wage fund will not be less than $80. The 
laborers may be able to persuade the farmer to 
give them the benefit of this advance. If not, 
they can compel him to do so by refusing to 
work except for the increased pay; provided, 
that he can get nobody else to take their places. 
This latter remedy for low wages is, however, 
a dangerous one for the laborers, as Prop. XIX 
will show. 

Second, when the real wage fund is below 

31 



A PRIMER OF POLITICAL ECONOMY 

the possible wage fund, persuasion or compul- 
sion may make it the same. 
f Third, both the real and the possible wage 
funds are increased (Prop. XV) whenever the 
commodities bought by the laboring classes are 
cheapened. 

Fourth, if a laborer, or anybody else, avoids 
unproductive consumption and saves what he 
can, he increases the wealth of the country, 
therefore the capital, and therefore the wage 
fund. It is calculated that every $1,000 in the 
savings-banks, by being loaned to a man who 
wishes to use it as capital, can employ one extra 
laborer. 

It is far better to increase the dividend (the 
real wage fund) than to diminish the divisor 
(the number of men employed). 

A decrease in this divisor will not always 
increase the quotient, because it is apt to cause 
a decrease in the dividend. If a wage fund of 
$10 is divided among five men, and the death 
or idleness of one man involves a decrease of 
$2 in the wage fund, wages will remain the 
same. At first, five men got $10, or $2 apiece; 
now four men get $8, or $2 apiece. There are 
two ways in which a decrease in the number of 

32 



A PRIMER OF POLITICAL ECONOMY 

men employed may not increase the wages of 
the remainder: 

First, since capital cannot produce anything 
(Prop. I) except with the aid of labor, a 
diminution of the latter may make the stock 
of capital too large to be profitably used in con- 
nection with the labor that is left. Part of it 
will, therefore, be withdrawn. This will dimin- 
ish the general wage fund. This decrease in 
the diyidend may be large enough to balance, 
or more than balance, the decrease in the divi- 
sor. If it just balances it, wages will remain the 
same, as the last example shows. If it more 
than balances it, wages will fall. Thus, if the 
withdrawal of one of the five men leads to the 
reduction of the wage fund to $7, the four who 
are left will get only $1.75, instead of $2, 
apiece. Moreover, the diminished production 
of one commodity, which is apt to result from 
the withdrawal of labor, will raise its price, 
and thus (Prop. XV) really decrease the wages 
of all buyers of that commodity. 

Second, if the men thrown out of work find 
nothing else to do, they will be unproductive 
consumers. They will then be supported at the 
expense of the whole country, including, of 

33 



A PRIMER OF POLITICAL ECONOMY 

course, all wage getters. This will diminish 
the wealth of the country. A decrease in wealth 
usually involves a decrease in capital, and a 
decrease in capital means a smaller wage fund. 
In this case, too, then, a smaller divisor will 
involve a smaller dividend, and therefore the 
quotient may not be greater. 

Lessening the number of men employed is 
thus at best only a temporary remedy for low 
wages. By decreasing the supply, and thus 
(Prop. VI) raising the price of the commodity 
on which less labor is now spent, it diminishes 
the wages of all buyers of that commodity. 
By causing a direct withdrawal of capital it 
diminishes the wage fund. By increasing the 
unproductive consumption of the country, it 
lessens its wealth and therefore lessens its wage 
fund also. 

Nevertheless, this decrease in the number of 
employees may raise wages. If half the car- 
penters in this country should die or emigrate, 
the wages of the other half would be advanced, 
although, owing to the consequent withdrawal 
of some capital, the new wages probably would 
not be double the old ones. 

Therefore, wages can be raised only by in- 

34 



A PRIMER OF POLITICAL ECONOMY 

creasing the real wage fund, or by lessening the 
number of persons employed. 



PROPOSITION XVII 

The use of labor-saving machinery benefits labor 

The use of such machinery may at first dimin- 
ish the number of laborers employed, but it will 
ultimately increase the number. If a spinning 
machine which enables two men to do the work 
of ten is invented, its use would probably lead, 
at first, to the discharge of some of the spin- 
ners then employed. The saving in labor would 
make spun goods cheaper. This would (Prop. 
XV) really raise the wages of all laborers who 
used such goods. Moreover, the manufacture 
of the new machines would lead to the employ- 
ment of more machinists. 

The gain, too, would be lasting, while the 
loss would be only temporary. Experience has 
shown that an article offered at a low price will 
be bought by many persons who would prefer 
to get along without it if the price asked were 
a little higher. If a manufacturer can produce 
linen at a cost of 95 cents a yard, and can sell 
one thousand yards if he asks $1.05 a yard, 

35 



A PRIMER OF POLITICAL ECONOMY 

and three thousand yards if he asks only $i, 
it will pay him to choose the latter price, be- 
cause he will then make a larger sum of money. 
His two accounts would be as follows : 

1,000 yards sold at $1.05 $1,050 

Cost of same at 95 cents 950 

Total profit $ 100 

3,000 yards sold at $1 $3,000 

Cost of same at 95 cents 2,850 

Total profit $ 150 

The extra profit at the lower price is $50. 

The great reduction in the cost of produc- 
tion, and therefore in the selling price of goods 
made by machinery, has always hitherto so in- 
creased the demand for the goods that the 
manufacturers have ere long employed at least 
as many workpeople, with the machinery, as 
they did before the machinery was invented. 
Usually they have employed many more. Thus, 
to take the case of linen, the persons now em- 
ployed in its manufacture greatly outnumber 
those so employed when the work was nearly 
all done by hand. 

The temporary loss of employment by the 
people whose labor is done by machinery is 

36 






A PRIMER OF POLITICAL ECONOMY 

more than counterbalanced by the permanent 
gain of the people whose labor is necessary to 
make the machines, and by the finally increased 
demand for the labor temporarily injured. Be- 
sides this, the increased cheapness of the ma- 
chine-made goods (Prop. XV) raises the wages 
of every laborer who buys them. This is a 
permanent gain in most cases for all laborers. 

Therefore, the use of labor-saving machin- 
ery benefits labor. 

PROPOSITION XVIII 
High wages often make high profits 

The cost of labor "is determined by the 
amount of work really done for the wages." * 
Thus, if A and B are paid equal wages, and A 
does twice as much work as B, B's labor is 
twice as dear as A's. Suppose they get $2 
apiece. B produces 10 yards of linen in a day, 
and A produces 20 yards. Each yard produced 
by B, therefore, costs 20 cents for labor, while 
each produced by A costs only 10 cents for 
labor. It will be cheaper for the employer to 
hire A at $3 a day than to continue to em- 

* Prof. Fawcett. 

37 



A PRIMER OF POLITICAL ECONOMY 

ploy B at $2. For then linen will still cost 
($3 -=-20=) only 15 cents a yard for labor, 
whereas with B at $2 it will cost 20 cents a 
yard for labor. Good labor at good wages may 
therefore be cheaper than poor labor at poor 
wages. 

If an employer gives higher wages than his 
neighbors, he will attract to his service the very 
best laborers. He will therefore have the ad- 
vantage of a set of workmen who have more 
strength, skill, carefulness, economy in the use 
of materials, honesty, and sobriety, than those 
of his neighbors. His employees will be care- 
ful not to lose their good places by quarreling 
with him in any way. The feeling that he is 
treating them generously will lead them to treat 
him in the same way. They will not shirk 
work, and thus part of the expense of over- 
seers may be saved. The cheerfulness and 
hopefulness caused by their improved material 
condition will increase their productive powers. 
In. Austria, free hired labor was found to be 
three times as productive as the labor of serfs. 
The better food which men getting higher 
wages can buy may also increase their powers 
of production. 

38 



A PRIMER OF POLITICAL ECONOMY 

Thus high wages tend to increase production. 
They often, as experience has shown, increase 
it so largely that the real cost of production is 
less, and the profits are therefore higher. 

Thomas Brassey, the first of the great Eng- 
lish contractors, took contracts all over the 
world. In his book Work and Wages he cites 
many instances of increasing the profits he 
made by increasing the wages he paid. For 
example, in the Metropolitan Drainage Works 
in London, the brickwork was done at a less 
cost per cubic yard when the wages paid rose 
to $2.50 a day than when they were $1.50 a 
day. 

From 1898 to 1903 I was building the Vera 
Cruz & Pacific Railroad in Mexico. At first 
I paid the men engaged in track laying a Mex- 
ican dollar (about 50 cents in our money) a 
day. Then work went slowly. Then I intro- 
duced piecework, paid so much for each rail 
laid. Towards the end, the men earned from 
$2 to $3, Mexican, a day, but as they laid four 
times as much track each day as they had laid 
when the wages were one dollar, my profits 
were higher per mile of track than they had 
been when the wages were much lower. 

39 



A PRIMER OF P0LIT1 

In 1906-7, when I was building the Cauca 
Railroad, from the Pacific Ocean through the 
Andes Mountains, in Colombia, South Amer- 
ica, I had the same experience. 

If high wages incite men to better work, a 
smaller number of men can be employed to 
produce a given amount. In this way, while 
the wages of the individual are higher, the 
aggregate wages (the real wage fund) may be 
less. If 10 men, getting $3 a day, will do the 
work of 16 men, who get $2 a day, it is mani- 
festly cheaper for the employer to hire the 10 
men. For then he will pay only $30 a day in 
wages instead of §i> 2 > an d will still have the 
same product. 

It must be remembered that increased wages 
can make increased profits only by increasing 
production. Hence, if men are not induced 
to work better by getting better wages, it is 
bad policy for the employer to give such wages. 
There are cases in which high wages will not 
stimulate production. When the laborer can 
buy all he needs with low wages, if wages rise, 
he may labor just long enough to earn what 
he used to earn in a day, and may idle away 
the rest of his time. The Hindoos employed 

40 






A PRIMER OF POLITICAL ECONOMY 

in railway building in India worked less and 
less as their wages rose. The coal miners in 
England have had their wages greatly in- 
creased since 1870, but their hours of work 
have since been fewer, so that the value of the 
coal produced has not kept pace with the in- 
creased value of the wages. Their high wages 
have therefore diminished, not increased, prof- 
its. These cases show that high wages do not 
always make high profits. The previous proof, 
however, has shown that they sometimes do, 
and in fact are apt to do so. 

Therefore, high wages often make high 
profits. 

Definition 10. A strike is a conspiracy of em- 
ployees against employers, by which the former 
refuse to work unless the latter yield to their 
wishes. 

Definition ii. A lock-out is a conspiracy of 
employers against employees, by zvhich the 
former refuse to give the latter zvork unless 
the employees yield to their wishes. 

PROPOSITION XIX 

Usually it is bad policy to strike 
When men strike, the side which can afford 
to be idle the longest will win. The masters 

41 



A PRIMER OF POLITICAL ECONOMY 

are usually rich enough to live on their accu- 
mulated property for some time. The men 
often have no savings, and rarely, if ever, have 
large ones. They may belong to a trade-union 
which will supply them with means of sub- 
sistence for some time, but the small funds of 
such a society, divided among a number of 
men, cannot go far. The masters must have 
the men work in order to have their capital 
yield them anything, but the men must work 
in order to live. It is plain that the masters 
can, as a rule, stay idle the longest. 

The masters can combine against the men. 
Since a strike which forced one employer to 
raise wages would probably compel all similar 
employers in that part of the country to in- 
crease their wage funds, too, it is to the appar- 
ent interest of every employer that no strike 
should succeed. Hence, if one set of employees 
is supported while on strike by the contribu- 
tions of their comrades who are still at work, 
the employers of the latter often make a lock- 
out (Def. n), and so cut off this source of 
supply and starve all the men together into 
submission. 

The masters can combine with more effect 

42 



A PRIMER OF POLITICAL ECONOMY 

than the men, because they are fewer and better 
informed. 

It grows more difficult to strike successfully, 
every year, because the increased facilities of 
transportation enable the employers to bring 
men from other parts of the country, and even 
from other countries, to take the place of the 
strikers. 

So many men have been engaged in both 
Europe and Asia and brought to this country 
to take the place of Americans who were on 
strike that we now have a law against bringing 
in laborers who are under contract to work. 

A strike is apt to create a habit of idleness 
among the strikers, which unfits them for good 
work thereafter. They are often led to drink 
in order to while away the time. The want 
from which they and their families suffer 
while they earn nothing sometimes drives them 
to theft. If these dangers are escaped, a strike 
usually consumes all the men's savings, and 
obliges them to waste, in unproductive con- 
sumption, a large part, if not all, of the trade- 
union's funds, which are the joint savings of 
themselves and their fellows. 

The- fear of constant trouble from strikes is 

43 



A PRIMER OF POLITICAL ECONOMY 



apt to drive away capital, and thus make it nec- 
essary for the men dependent upon the wage 
fund part of that capital to seek employment 
elsewhere. A prolonged strike has sometimes 
utterly ruined the industries of a whole town. 
The prosperity of Norwich, England, ended 
with a great strike there in 1830. 

Much of the Russian trade was at one time 
lost to English manufacturers, because the Rus- 
sian merchants, hearing of strikes in England, 
and fearing their orders could not be executed 
there, sent the orders elsewhere. 

If, however, all these obstacles are overcome 
and the strike succeeds, it very seldom repays 
the men what they have given for it. They 
rarely get the higher wages for any long time, 
unless the working of the first law of supply 
and demand (Prop. VI) would have soon given 
them these wages without a strike. For such 
artificial changes in wages only interrupt, not 
destroy, the natural law laid down in Proposi- 
tion XII. Despite all that employers or em- 
ployees can do, that law will in the long run fix 
wages. 

Suppose 1,000 men, each earning $3 a day, 
or $3,000 a day together, strike for three 

44 



A PRIMER OF POLITICAL ECONOMY 

months in order to get $3.50 a day. The strike 
will cost them the wages they would have 
earned, or $3,000 a day. Its total cost for the 
eighty working days in the three months will 
be eighty times $3,000, or $240,000. When 
they resume work at $3.50 a day, they will 
receive fifty cents apiece, or $500 together, a 
day more than before. This is what the strike 
pays them. It will be necessary for them to 
work 480 days (or, including Sundays, over 
eighteen months) before they have made up the 
money they lost by the strike ; for the loss was 
$240,000, and $500 a day for 480 days just 
equals $240,000. But it is very improbable 
that they will get the $3.50 for eighteen 
months, unless the law of wages would, before 
the eighteen months were over, have given it 
to them at any rate. And in that event the 
money spent on the strike was simply wasted. 

In order that a strike shall succeed, three 
things are absolutely necessary: First, the 
real wage fund must be less than the possible 
wage fund, for if the two coincide, no power 
whatever (see proof of Prop. XI) can raise 
wages; second, the men must have means of 
subsistence for some time ; third, they must not 

45 



A PRIMER OF POLITICAL ECONOMY 

only stop work themselves, but they must per- 
suade or compel all their fellow workmen to 
refuse to work for this particular employer. 
If they compel them to refuse, they are liable 
to be fined or imprisoned; for a man has a 
right to sell his labor to anybody engaged in 
honest business, and compelling him to give 
up this right is a crime. 

While, then, a strike may sometimes succeed, 
the chances are greatly against it; and if it 
does succeed, it rarely repays its cost. 

Therefore, usually it is bad policy to strike. 



PROPOSITION XX 

It is to the advantage of both employers and 
employees to settle their disputes by arbitration 

This method of settlement is as follows: 
The employers and the employees together 
choose one or more persons who are to act as 
the judge or judges of the dispute. Before 
the court thus formed, each side states its 
grievances and its wishes. The workmen ex- 
plain, for instance, why they think their wages 
should be increased, and the employers tell 
what reasons they have for not raising wages. 

46 



A PRIMER OF POLITICAL ECONOMY 

The judges, having heard both sides fully, 
decide which is right. 

As the judges are chosen for their integrity 
and fairness by both the parties to the quarrel, 
this decision usually satisfies both sides. As 
masters and men agreed to submit the question 
to these judges, both parties are bound, in 
honor, to obey the decision that is given. They 
usually do so. Thus an interruption of work 
and a waste of wealth by a strike or a lockout 
are prevented, and good feeling is preserved 
between masters and men. 

A number of English manufacturing towns 
have permanent boards of arbitration. Half of 
the members of these boards are elected by the 
masters, and half by the men. They have 
decided very many trade disputes, and have 
saved millions of dollars that would have been 
wasted if the men had struck against the mas- 
ters, or if the masters had locked out the men. 

In France, there are regular arbitration 
courts. These courts consist of a President 
and Vice-President, appointed by the govern- 
ment, and six other persons, who are elected 
by the employers and employees. No salaries 
are paid, so that arbitration is cheap. Out of 

47 



A PRIMER OF POLITICAL ECONOMY 

each hundred cases brought before these courts, 
ninety-five are amicably settled, then and there. 

It is of great public importance to have labor 
disputes settled by arbitration, instead of by 
strikes or lockouts. Not only does this pre- 
vent suffering, rioting, etc., but it often pre- 
vents the shutting down of industries upon 
which the public welfare absolutely depends. 
When a labor dispute stops the railroads, or the 
street railroads, or the supply of electricity, or 
that of coal, the injury to the public is such that 
in these and similar cases the public has the 
right to insist that the dispute shall be settled 
by arbitration instead of by lockout or strike. 
The United States and other countries have 
laws which provide methods of arbitration. 
Some countries (New Zealand, for instance) 
have laws which enforce the use of these 
methods. 

Arbitration has often prevented wasteful 
strikes and lockouts in this country. It ended 
the great anthracite coal strike in Pennsylvania 
in 1902. 

Therefore, it is to the advantage of both em- 
ployers and employees to settle their disputes by 
arbitration. 

48 



A PRIMER OF POLITICAL ECONOMY 

PROPOSITION XXI 

The best way to produce wealth is by cooperation 

True cooperation exists only when every one 
who has contributed to the production of any- 
thing receives a share of its proceeds in propor- 
tion to the worth of his work. If his capital or 
his labor has done half the work, he owns half 
the product. If he has done one-millionth part 
of the work, he owns one-millionth part of the 
product. 

Cooperation may be productive or distribu- 
tive. It may be between a master and his men, 
or between the men alone. A cooperative coal- 
mining company is an example of cooperative 
production. A cooperative grocery is an exam- 
ple of cooperative distribution. Cooperation 
between master and men exists when the men 
have a share in the profits, outside of their 
wages. Cooperation between men exists when 
the men have all the profits, that is, when the 
workmen in an establishment own the estab- 
lishment between them. 

Distributive cooperation is safer than pro- 
ductive. The capital and skill required in the 
management of a grocery, which usually has a 

49 



A PRIMER OF POLITICAL ECONOMY 

steady circle of customers and sells today what 
it bought yesterday, are much less than the 
skill and capital required in the management of a 
coal mine. The cost of mining the coal is great. 
A good deal of capital is therefore necessary. 
The cost is also rather uncertain. A great num- 
ber of causes affect it. All these things must 
be foreseen, as far as possible. Great skill i§. 
therefore required. 

The best of all forms of cooperation is that 
between master and men. For in this the men 
gain the use of the skill and the capital of the 
master, and the master gains the hearty good 
will and the uttermost skill and energy of the 
men. 

There is little cooperation in America, but 
a good deal of it in England and Germany. 

As an example of cooperative distribution, by 
workmen alone, we will take the Equitable Pio- 
neer Society, of Rochdale, a manufacturing 
town near Manchester, England. In 1842, 
twenty-eight weavers formed this company. 
They were so poor that they could pay into the 
capital fund only four cents apiece per week. 
It took them two years to accumulate a capital 
of $140. On a December evening, in 1844, 

50 



A PRIMER OF POLITICAL ECONOMY 

"Toad Lane," a dingy little street in Rochdale, 
was crowded with a hooting rabble, gathered to 
see the opening of the "weavers' shop." When 
the shutters of the little room the Society had 
hired were taken down, the jeering crowd 
screamed with laughter at the sight of the al- 
most empty shelves within. For a long time 
the twenty-eight weavers were the only cus- 
tomers. They could not afford to hire a clerk, 
so they took turns in "keeping store" in the 
evenings. It was shut during the day. The 
scanty stock of groceries was soon sold. Its 
proceeds bought a larger stock. This went, and 
the next, and the next, and so on. By buying 
their goods directly from the producers, they 
got them so cheaply that they could sell them 
below the usual prices, pay all the store ex- 
penses, and declare a small dividend on the 
capital. In 1845 their capital fund was $910. 
Their membership was seventy- four. Soon 
they rented a larger room and hired a manager. 
In 1846 they began to sell meat; in 1847, dry 
goods; in 1852, boots, shoes, and clothing. In 
1852 they opened a wholesale department. 
From the start, the weavers have kept on weav- 
ing. This cooperative store is managed by per- 

51 



A PRIMER OF POLITICAL ECONOMY 



sons they employ, but it does not interfere with 
their work. 

The main building of the Society is now the 
most conspicuous structure in Rochdale. Its 
top floor is a plain, comfortable hall, where the 
monthly meetings of members are held, lectures 
delivered, and parties given. On the floor 
below are the reading-room and the library. 
The latter has about ten thousand volumes. 
There are eleven branch reading-rooms in the 
town. The Society maintains schools for its 
members and their children. It has a collec- 
tion of scientific instruments which it loans for 
two or three cents an evening to members who 
wish them for their own instruction or for the 
entertainment of their friends. The two lower 
floors of the building are divided into the dif- 
ferent stores the Society owns, and the basement 
is devoted to packing and storage. There are 
branch stores in different parts of the town — 
among them eleven butcher shops and thirteen 
groceries. The Society manufactures tobacco, 
and has invested some of its spare funds in 
wheat, cotton, and woolen mills. These are prop- 
erly examples of productive cooperation, how- 
ever, so that we will not discuss them here. In 

52 



A PRIMER OF POLITICAL ECONOMY 

December, 1871, the Society began to build 
homes for its members. It now sells them coal. 
Almost from the beginning, it has been their 
savings bank, receiving deposits at any time 
and paying interest upon them. 

Mr. George Jacob Holyoake, an English 
journalist, scholar, and cooperator, has written 
a History of Cooperation in Rochdale. We 
quote this passage from it : 

These crowds of humble workingmen, who 
never knew before when they put good food in 
their mouths, whose every dinner was adulter- 
rated, whose shoes let in the water a month too 
soon, whose new coats shone with " devil's dust," 
and whose wives wore calicoes that would not 
wash, now buy in the markets like millionaires, 
and, as far as pureness of food goes, live like 
lords. They are weaving their own stuffs, mak- 
ing their own shoes, sewing their own garments, 
grinding their own corn. They buy the purest 
sugar and the best tea, and grind their own 
coffee. They slaughter their own cattle, and the 
finest beasts of the land waddle down the streets 
of Rochdale for the consumption of flannel- 
weavers and cobblers. . . . The teetotalers 
of Rochdale acknowledge that the store has made 
more sober men since it commenced than all 
their efforts have been able to make in the same 
time. Husbands who never knew what it was 
to be out of debt, and poor wives who during 

53 



A PRIMER OF POLITICAL ECONOMY 

forty years never had sixpence uncondemned in 
their pockets, now possess little stores of money, 
sufficient to build them cottages, and go every 
week into their own market, with money jingling 
in their pockets. And in that market there is no 
distrust and no deception; there is no adultera- 
tion and no second prices. The whole atmos- 
phere is honest. 

The Rochdale Society now has 14,000 mem- 
bers. It does a business of $1,500,000. This 
has been built up and is now controlled by men 
who work for daily or weekly wages. 

The Equitable Pioneers' Society is organized 
in this way : Anybody who is approved by a 
majority of the Executive Committee and of 
the members can join the Society. He must 
subscribe for five shares of $5 each, pay an 
admission fee of 25 cents, and pay 9 cents a 
week until his five shares are all paid for. The 
money received in this way is the share capital 
of the Society. There is also a loan capital, 
formed by deposits by members. Interest is 
paid on these deposits and they can be with- 
drawn at any time. While the Society has 
them, it uses them to extend its business. They 
are, therefore, part of its capital. All goods 
are bought and sold for cash. This rule is not 

54 



A PRIMER OF POLITICAL ECONOMY 

proved by its exceptions, because it has no 
exceptions whatever. The Society sells its 
wares at about the market rates, sometimes a 
trifle lower. The profits are divided in this 
way: The expenses of management and the 
guaranteed interest of 5 per cent, on the loan 
capital are paid; then a dividend (never above 
5 per cent.) on the share capital is declared; 
then 2 T / 2 per cent, of the remainder is allotted 
to the educational fund (this amounts to over 
$5,000 a year) ; and the rest is divided among 
all the patrons of the store in proportion to 
their purchases. If one person has bought $20 
worth of goods, and another $10 worth, the 
first gets twice as much of this dividend on 
purchases as the second. A non-member gets 
about half as much as a member would. These 
dividends are sometimes as much as 12^/2 per 
cent. 

The members of the Equitable Pioneers' 
Society therefore get back part of the price 
they pay for everything at their store, get divi- 
dends on their shares, get interest on any sav- 
ings they deposit with the Society, have the use 
of reading-rooms, books, schools, etc., and get 
pure, good, unadulterated wares. Adulteration 

55 



A PRIMER OF POLITICAL ECONOMY 

can be prevented by making the interests of 
buyer and seller identical, and this can be done 
by distributive cooperation. 

In 1906 there were in England and Scotland 
1,400 cooperative stores, with* a capital of 
$165,000,600. In 19 10 the business done was 
$600,000,000. All this great business was 
done by and for wage earners. 

There were also in 1906 in England and 
Scotland 100 societies for cooperative produc- 
tion. They made shoes, printed books, wove 
cloths, made clothing, and worked in wood and 
in metals. Their separate businesses varied 
from $50,000 to $250,000 per year. 

There is cooperative production in Holland, 
Belgium, France, Germany, Denmark, Swit- 
zerland, Italy, Australia, and New Zealand. 
One of the most remarkable successes has been 
in Denmark. " The Danish farmer is almost 
always a freeholder — it is little more than a 
century since his ancestors were serfs. The 
farmer not uncommonly belongs to ten cooper- 
ative societies. The effect of agricultural coop- 
eration in Denmark has amounted to little less 
than a revolution. It has transformed a great 
part of farm work into a factory industry, in- 

56 



A PRIMER OF POLITICAL ECONOMY 

creased the yield of the soil, improved the 
material condition of the peasants, and drawn 
rich and poor together. Denmark, once so 
poor, is now, except England, probably the 
richest country in Europe in proportion to its 
population." * 

In the United States there is little coopera- 
tive distribution and almost no cooperative pro- 
duction. The nearest approach to the latter is 
in some of our giant corporations, but here, 
while the employees get something more than 
wages out of the wealth they create, they get it 
as a favor from the employers. This is not 
nearly as good for them as if they cooperated 
with each other to get the same results. Re- 
ceiving presents is not as good for a man as 
receiving justice. However, it is a sign of 
progress that the great corporations go as far 
as they do in paying something more than 
wages to their men. For instance, the United 
States Steel Corporation, the biggest corpora- 
tion in the world, and yet so small as to think 
trade-unions are wrong, does much for its em- 
ployees besides paying them wages. It does 
sanitation and welfare work, providing emer- 

* Encyclopaedia Britannica, Edition of 191 1. 
57 



A PRIMER OF POLITICAL ECONOMY 

gency hospitals, pure water, ventilating and cool- 
ing systems, athletics, ball-grounds, swimming- 
pools, shower baths, clubhouses, children's 
playgrounds. It provides plots for vegetable 
gardens. It lends money at low rates to build 
homes. It sells coal to its employees at cost. 
It compensates injured men and pays damages 
to the families of men killed in its service. It 
provides pensions for aged employees. Each 
year it offers its workmen the chance to sub- 
scribe for shares of its stock, which they get 
below the market price and can pay for in small 
monthly installments. On January i, 191 2, 
about 25,000 employees — one in eight — were 
stockholders. Its total yearly expenditure for 
improving the condition of its wage-earners is 
nearly $5,500,000. This is a splendid record, 
but it is a record of favors granted, not of jus- 
tice done. If the men were paid higher wages, 
so that they could buy these things for them- 
selves, and were wise enough to do so, that would 
be cooperative production of a high type. It is 
evident that the possible wage fund (Prop. XI) 
of the United States Steel Corporation is much 
larger than its real wage fund (Prop. XII). 
If its employees had sufficient intelligence to 

58 



A PRIMER OF POLITICAL ECONOMY 

combine, they could get higher pay, a real 
"living-wage." 

Cooperation prevents strikes, promotes good 
will, causes honest work, checks wastefulness, 
saves the expense of overseers, offers the work- 
man an opportunity to invest his savings at a 
profit, encourages thrift, morality, and educa- 
tion, and increases the profits of all the cooper- 
ators. 

Therefore, the best way to produce wealth is 
by cooperation. 

PROPOSITION XXII 

Trade-union funds can be best used in promoting 
cooperation 

These funds are now used in two ways. 
First, in helping members of the particular 
union to live while they cannot find work, and 
in aiding them or their families in case of ill- 
ness or death. Second, in supporting them while 
on strike. The first use is a good one. The second 
is apt (Prop. XIX) merely to waste the funds. 
It is rarely advisable. The wealth wasted in 
supporting a set of strikers for some weeks or 
months would often be more than enough, if 

59 



A PRIMER OF POLITICAL ECONOMY 

loaned to the men by the union, to enable them 
to buy an interest in their employer's business, 
or even to set them up in business for them- 
selves. 

Years ago, the journeymen shoemakers of 
Chicago, after a long and useless strike against 
a reduction of wages, started a cooperative shoe 
manufactory. It failed for want of capital. 
But the wealth furnished by the trade-union 
and unproductively consumed by the shoe- 
makers while on strike would have been more 
than enough capital for the manufactory. If 
it had been loaned to them for this purpose at 
the beginning, and if any of them had had suffi- 
cient skill to manage the business, they could 
have had both the wages of their labor and the 
profits on it for themselves. As it was, they 
consumed the wealth unproductively, cleared no 
profit on it, and had to go back to work at the 
lower rates offered by their old employers. 
Some of them could not get work at all, be- 
cause the vacant places had been partly filled 
with shoemakers brought from the East. These 
unfortunates had to go to the expense of seek- 
ing employment in other cities. 

Trade-unions should use their funds in this 

60 



A PRIMER OF POLITICAL ECONOMY 

way: As soon as a union accumulates a few 
hundred or thousand dollars above the amount 
it needs for the relief of temporary distress 
among its members, it should loan this surplus, 
with proper precautions for its repayment, to 
the set of its members which would pay most 
for the use of it. These men should then em- 
ploy it in productive or distributive cooperation. 
By the former they could raise their wages in 
money, and so in purchasing power. By the 
latter, they could raise them in purchasing 
power by cheapening the prices of the necessa- 
ries of life. They would gradually repay the 
loan out of their extra profits. Meanwhile, the 
trade-union would accumulate another surplus, 
and loan that in the same way. This would be 
repeated again and again, until at length all the 
members of the union would become small capi- 
talists as well as laborers, getting interest on 
their capital and wages on their labor and 
profits on both. This would be self-help, and 
self-help is the best help. 

At present, trade-union funds do only tempo- 
rary good to the members of the union. Under 
the system here proposed, the funds would do 
the members permanent good. 

61 



A PRIMER OF POLITICAL ECONOMY 

Therefore, trade-union funds can be best 
used in promoting cooperation. 

PROPOSITION XXIII 

Wealth, when produced, is divided into rent, profits, 
and wages 

We have seen (Prop. I) that three things are 
needed to produce wealth — natural agents, 
capital, and labor. Each of the three must be 
paid for, except (Prop. II) the natural agents, 
which are practically unlimited in quantity, and 
therefore are not wealth. Rent * is the portion 
of the product which pays for the limited natu- 
ral agents; profits, the portion which pays for 
the capital ; and wages, the portion which pays 
for the labor. 

Suppose A rents an iron mine and the land 
on which his smelting works stand, for $10,000 
a year. He pays wages of $70,000 a year. The 
annual product of his works is 100,000 bars of 
iron worth $1 apiece. Then the $100,000 in 
wealth so produced will be divided into 
rent, $10,000, wages, $70,000, and profits, 
$20,000. If A has had charge of the business, 

* Notice the difference between this meaning of 
" rent " and its ordinary meaning. 

62 



A PRIMER OF POLITICAL ECONOMY 

the $20,000 will be partly profits, and partly his 
wages as general manager. 

The real profits are usually smaller than the 
apparent ones, because the portion of the prod- 
uct allotted to the capitalist is usually partly 
composed of his wages. His mental labor has 
as much right to reward as the mental or bodily 
labor of his employees. It is not correct to 
include the wages he earns in the profits his 
capital earns. If, however, he only owns 
the plant and does no work, all he gets is 
profit. 

Since there can be no production (Prop. I) 
if any one of the three factors does not aid the 
other two, it is right that every one of the 
three should be rewarded for its aid. Thus 
capital has as much right to its profits as labor 
has to its wages. 

The limited natural agents, capital and labor 
are all wealth. Therefore (Def. 4) something 
can be got in exchange for them. And hence, 
since all three are used in producing wealth, 
the owners of each get something in exchange 
for it from the wealth produced. 

Therefore, wealth, when produced, is divided 
into rent, profits, and wages. 

63 



A PRIMER OF POLITICAL ECONOMY 
PROPOSITION XXIV 

Wealth is sometimes shared between three classes, 
and sometimes between two, and is sometimes 
absorbed by one 

When the land, the capital, and the labor used 
in production are furnished by three different 
persons, or sets of persons, the first gets the 
rent, the second the profits, and the third the 
wages. 

But when one class furnishes any two of 
these three productive powers, the wealth is 
shared between two classes. For if one man 
owns the land and the capital, he gets both the 
rent and the profits. The other persons, who 
furnish the labor, get the wages. If some agri- 
cultural laborers rent a farm and cultivate it, 
they will get the profits and wages, and the 
land-owner will get the rent. If a land-owner 
borrows some capital to use on his land, and 
does the necessary work himself, he will get 
the rent and the wages, and part of the profits 
earned by his capital, and the lender of the rest 
of the capital will get the rest of the profits. 

When one man owns the land, the capital, 
and the labor (his own or that of slaves), he 
gets the rent, profits, and wages. A market 

64 



A PRIMER OF POLITICAL ECONOMY 

gardener may own a piece of land and the capi- 
tal used in cultivating- it, and may do all the 
necessary work himself. Then he gets rent* 
profits, and wages. That is, all the wealth pro- 
duced by his land, his capital, and his labor 
belongs to him. 

Therefore, wealth is sometimes shared be- 
tween three classes, and sometimes between 
two, and is sometimes absorbed by one. 

PROPOSITION XXV 

The first law of supply and demand fixes the pro- 
portion of rent, profits, and wages to each other 

If there is a great deal of land seeking em- 
ployment and a comparatively small demand 
for land, then (Prop. VI) the price paid for its 
use will be small, and therefore the rent will 
take but a small part of the product. If the 
supply of land does not equal the demand for 
it, then (Prop. VI) the rent will be a larger 
part of the product. 

In the same way, the ratio of demand to 
supply will decide what part of the product 
shall be used to pay profits, and what part to 
pay wages. 

Therefore, the first law of supply and de- 

65 



A PRIMER OF POLITICAL ECONOMY 

mand fixes the proportion of rent, profits, and 
wages to each other. 

Definition 12. Value is purchasing power. 

The value of a thing is its power of purchasing 
other things. If a yard of velvet will buy two 
yards of broadcloth, or three yards of linen, the 
value of velvet is twice that of broadcloth and 
thrice that of linen. If a pound of tea will ex- 
change for three pounds of coffee, the value of 
tea is thrice that of coffee. 

The value of a thing is always found by com- 
paring it with other things. 

Definition 13. Price is value expressed in 
money. 

For the sake of convenience, one universal 
standard of value has been taken. This standard 
is money. It is a common denominator of values. 
Instead of saying that the value of a pound of 
tea is three times the value of a pound of coffee, 
we say that tea is worth 90 cents and coffee 30 
cents a pound. 

When the value of a thing is expressed in 
money, it is called its price. 

PROPOSITION XXVI 
There cannot be a general rise or fall in values. 

Suppose there were only two things in the 
world, one named A and the other B. There 

66 



A PRIMER OF POLITICAL ECONOMY 

could not be a general rise in their value. For 
the value of a thing (Def. 12) is its power of 
purchasing other things. If A rises in value, 
it must buy more of B. Then it will take more 
of B to buy A. B's value will therefore be less. 
Thus, if A rises in value, B must fall in value. 
And if B rises in value, it must buy more of A. 
That is, A must fall in value. Since each must 
fall in order that the other may rise, in value, 
they cannot rise together. 

What is thus true of two things is equally 
true of three, four, and all things. In order 
that one may rise in value, others must fall. 
And so, if one falls in value, others must rise. 
For the one will then have less purchasing 
power. That is, it will buy less of other com- 
modities. The others, then, will buy more of 
it. They will therefore have more value. 

Suppose one pound of tea will buy three 
pounds of coffee or eighteen pounds of sugar. 
Their values, compared with each other, cannot 
all rise together; for if tea grows so dear that 
one pound of it will buy four pounds of coffee 
or twenty- four pounds of sugar, then the value 
of coffee and sugar has fallen. It takes more 
of each of them to buy a pound of tea. 

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A PRIMER OF POLITICAL ECONOMY 

Thus, in order that one thing may rise in 
value, others must fall. And vice versa. 

Therefore, there cannot be a general rise or 
fall in values. 



PROPOSITION XXVII 
There may be a general rise or fall in prices 

One thing may rise in value, but in order that 
it may do so, other things (Prop. XXVI) must 
fall. If money rises in value, it will take less of 
it to buy other commodities. Therefore, gen- 
eral prices will fall. If money falls in value, 
it will take more of it to buy other commodities. 
Therefore, general prices will rise. 

If tea has been selling for 90 cents, coffee for 
30, and sugar for 5, a pound, and a scanty 
supply (Prop. VI) forces their prices up to 
$1.80, 60, and 10 cents a pound, the value of 
money, so far as they are concerned, will have 
fallen. A dollar will not exchange for as much 
of them as it used to. There has been a gen- 
eral rise in their prices, but there has been 
neither rise nor fall in their values, compared 
with each other. For a pound of tea, before 
the rise in price, would have bought three 

68 



A PRIMER OF POLITICAL ECONOMY 

pounds of coffee or eighteen of sugar, and it 
will buy precisely the same amount now. 

Therefore, there may be a general rise or fall 
in prices. 

PROPOSITION XXVIII 

The value of a thing depends upon the cost of its 
production 

No commodity will be produced unless there 
is a demand (Def. 6) for it. Neither will a 
commodity be produced unless those who want 
it are willing to> give in exchange for it some- 
thing of equal value. For, since it always costs 
something to produce a commodity, the pro- 
ducer will not be willing to exchange it for less 
than it cost him. This cost is called the cost of 
production. Since the article will not be ex- 
changed for less than its cost of production, its 
value (Def. 12) must depend upon this. 

The cost of production consists of the cost 
of using the land, the mental and bodily labor 
expended, and the capital consumed, in the pro- 
duction. Both the labor and the wages paid for 
it are to be reckoned, for the first is the sacri- 
fice or cost of the laborer, and the second is part 
of the sacrifice or cost of the capitalist. 

69 



A PRIMER OF POLITICAL ECONOMY 

The cost of production fixes the intrinsic 
value, that is, the value at which the article can 
be exchanged without loss. Its market value is 
somewhat greater than this, because the capi- 
talist sells it at a profit. If he made no profit, 
he would not care to use his capital in producing 
the commodity. 

Intrinsic value is fixed. Market value varies 
with supply and demand (Prop. VI). It may 
sometimes even fall below intrinsic value, but 
if it does so for any length of time, production 
(Prop. VII) will slacken and the consequent 
diminished supply (Prop. VI) will send up the 
market value again. 

Therefore, the value of a thing depends upon 
the cost of its production. 

PROPOSITION XXIX 
In every fair bargain, both parties gain 

One man's gain cannot be another man's loss, 
in trade, except in cases of ignorance or deceit. 

If a man in England exchanges cutlery for 
cotton with a man in America, each is a gainer. 
The value of the cutlery is equal to the value 
of the cotton, or the exchange would not be 

70 



A PRIMER OF POLITICAL ECONOMY 

made. Each now has what he wants, whereas 
each before had what he wanted to part with. 
The Englishman wanted the cotton more than 
he did the cutlery. The American wanted the 
cutlery more than he did the cotton. Each has 
his greater want gratified. So both have gained. 

What is true of the Englishman and the 
American is true of the New York merchant 
and the Iowa farmer, or of a million English- 
men and a million Americans. 

Therefore, in every fair bargain, both parties 
gain. 

PROPOSITION XXX 

The first method of exchange, barter, is unfit for 
use in a civilized community 

Barter is the exchange of one thing for an- 
other without the use of money. This was the 
first method of exchange. It is the way in 
which all buying and selling is still carried on 
in some barbarous communities. If a savage 
has more food than he can eat, he exchanges 
the surplus for something he needs — a skin, or 
a bow and arrows. 

This method of exchange is inconvenient. It 
would not be practical among civilized people. 

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A PRIMER OF POLITICAL ECONOMY 

A tailor has only clothes to sell. If he 
wanted a loaf of bread, and barter still pre- 
vailed, he would have to offer a baker some 
article of clothing — a coat, for instance — in 
exchange for bread. But probably the baker 
would have all the coats he needed. He might 
say he wanted a stove. Then the tailor would 
have to find a stove-maker who was willing to 
exchange a stove for a coat ; get a stove in this 
way ; and then give the baker the stove for the 
bread. If he could find no such stove-maker, 
he would have to hunt for another baker. " He 
might starve before he could find any person 
having bread to sell who wanted a coat; be- 
sides, he would not want as much bread at a 
time as would be worth a coat, and the coat 
could not be divided." * 

What is true of the exchange between the 
tailor and the baker is true of all other ex- 
changes. It is easy to see, then, that barter 
hinders trade. If we tried to do business 
today by barter, without money, all big busi- 
ness would have to stop. 

Therefore, the first method of exchange, bar- 
ter, is unfit for use in a civilized community. 

♦John Stuart Mill. 
72 



A PRIMER OF POLITICAL ECONOMY 

PROPOSITION XXXI 

The great instrument of exchange is money 

The impossibility of carrying on trade in 
civilized countries by barter made the introduc- 
tion of money a necessity. Money is the great 
medium of exchange. Whoever has enough 
money can buy whatever is offered for sale. 

The tailor mentioned in the last proposition 
could get the bread he wanted of the baker if 
he had money. It is by means of money that 
the lawyer exchanges his legal ability for his 
food, clothing, rent, etc., and that a teacher ex- 
changes his learning for rent, groceries, clothes, 
etc. The teacher first sells his learning for 
money, and then he sells his money for gro- 
ceries, clothes, fuel, the use of a house, etc. 

The same thing is true of all civilized men. 
Take the case of a shoe dealer. His wealth is 
in shoes. Through the medium of money, he 
exchanges his shoes for whatever he wants. He 
sells his shoes for money, and then sells the 
money for leather, or bread, or a ticket to a 
concert, or anything else. 

Therefore, the great instrument of exchange 
is money. 

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A PRIMER OF POLITICAL ECONOMY 

PROPOSITION XXXII 

Money is the measure of values 

Lengths are measured by inches, feet, yards, 
etc. ; weights by ounces, pounds, etc. ; time by 
minutes, hours, days, and years ; and values are 
measured by money. 

Money may therefore be denned as the me- 
dium of exchange and the measure of values. 

If there were no measure of values, it would 
be difficult to tell at any time how much of one 
commodity should be given in exchange for 
another. It would be impossible to know how 
much any man was worth without naming all 
the things he owned, one after another. 

When the tailor wishes to let his customer 
know the value of a coat, he expresses that 
value in money. When a man wishes to tell 
how rich he is, he expresses it in money, too. 

Therefore, money is the measure of values. 

PROPOSITION XXXIII 
Money in specie is like all other commodities 

Money in specie is gold or silver money. 
Paper money is not specie. Specie money is a 
commodity like all other commodities. Gold 

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A PRIMER OF POLITICAL ECONOMY 

and silver, whether coined or not, are commodi- 
ties, just as iron and lead are. 

The value of specie depends upon the cost of 
production, as the value of all other commodi- 
ties does. The value of specie money is the 
value of the metal composing it, and the cost of 
coining it. The value of the metal depends 
upon the cost of producing it, that is, the cost 
of getting it out of the mine and of freeing it 
from impurities. 

The value of specie is affected by demand 
and supply, just as all other values are. If the 
stock of gold greatly increases, an ounce of 
gold will exchange for less food, clothes, or 
anything else. If the stock of gold decreases, 
an ounce of it will exchange for more food, 
clothing, etc. 

All the other natural laws affecting commodi- 
ties apply to gold and silver. 

Therefore, money in specie is like all other 
commodities. 

PROPOSITION XXXIV 

Gold makes the best money 

The thing which is to serve as money should 
(i) have large value in small space and 

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A PRIMER OF POLITICAL ECONOMY 

weight, because otherwise nobody could carry 
about with him enough to buy what he needed, 
from time to time; and if he bought on credit, 
much time and labor would have to be spent in 
finally taking a large, heavy substance to the 
stores in settlement of the bills; 

(2) be steady in value, because something 
which changes its own value continually cannot 
measure the values of other things; 

(3) be durable, for if it continually wasted 
away, its value would diminish every day and 
every minute ; 

(4) be indefinitely divisible, for otherwise it 
could not represent small values, and change 
could not be made ; 

(5) be capable of receiving and retaining 
delicate marks, in order that the different pieces 
of money should be readily recognized, even 
after they have been used for a long time ; 

(6) be easily distinguished even from simi- 
lar substances, for otherwise counterfeits will 
be put in circulation by bad men ; and 

(7) be recognized as money by the civilized 
world, because it has to be used to make ex- 
changes between citizens of different nations 
as well as between those of the same nation. 

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A PRIMER OF POLITICAL ECONOMY 

Gold fulfills, better than any other known 
substance, these seven requisites for money: 

(i) It has large value in small space and 
weight. No other substance, which exists in 
sufficient quantity to be used as money, con- 
tains as much value as gold does in equal space 
and weight. 

(2) It is steady in value. Since history 
began, there have been only two considerable 
changes in its value. The first was after the 
discovery of the South American and the Mex- 
ican mines. The second was after the discov- 
ery of the South African mines. Still, it costs 
almost as much now to extract an ounce of 
gold from the earth, purify it, and coin it as 
it has cost for very many years. Since the 
cost of production is steady, the value (Prop. 
XXVIII) must be steady. 

(3) It is very durable. Coins buried for 
ages have been dug up in Egypt which retain 
the former color and the designs of their day 
almost perfectly. 

(4) It is indefinitely divisible. It is easy 
and safe to divide. It loses nothing, 
too, by being divided. An ounce of gold 
is worth just as much, no matter into how 

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A PRIMER OF POLITICAL ECONOMY 

many pieces it is divided. If a large diamond 
were quartered, it would lose 99 per cent, of 
its value. 

(5) It can be easily coined, and it retains 
the forms and designs given it for a very great 
number of years. 

(6) It cannot be easily imitated. Counter- 
feits of it, though made with cunning care, can 
be readily detected. The "ring" of gold can- 
not be produced by any baser metal. 

(7) It is the only substance recognized as 
standard money by the whole civilized world. 

Therefore, gold makes the best money. 

PROPOSITION XXXV 

Paper money, not convertible into specie at par, is 
an evil 

The measure of length must have length ; the 
measure of weight must have weight ; the meas- 
ure of values must have value. Paper money 
has only a sham value, unless it is convertible 
into specie at par. If you can get a gold dollar 
by presenting a paper dollar at the bank which 
issues it, then paper is as good as gold, because 
everything is worth what it will exchange for. 
Paper is more convenient to carry than gold. 

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A PRIMER OF POLITICAL ECONOMY 

This is the reason it is used by communities 
whose paper money is convertible into specie. 

Inconvertible paper money has a sham value, 
because the value at which it exchanges does 
not depend upon its cost of production. It 
costs only about one mill to produce a paper 
dollar. The reason it exchanges for more than 
one mill is because the bank or government issu- 
ing it promises to redeem it in specie some time. 
The chance of its being worth par in gold some 
time makes it worth something in gold now. 
But since its value depends upon this chance, it 
must change with the chance. The chance 
changes from day to day, and ^so the value of 
paper money changes. 

This changing value makes it unfit to meas- 
ure values, just as a stick which was 30 inches 
long today and 25 tomorrow and 27 the day 
after would be unfit to measure length. 

If it cannot measure values accurately, it 
cannot be a good medium of exchange. Sup- 
pose the tailor is willing to sell a coat for $20 
in gold, he will not take $20 in inconvertible 
paper for it, because the value of such money 
changes from day to day, and so the $20 bill 
may not be worth as much as a $20 gold piece 

79 



A PRIMER OF POLITICAL ECONOMY 

tomorrow. If $i in paper is worth that day 
50 cents in gold, he will charge about $45 for 
the coat. The $40 will equal the $20 gold 
piece, and the extra $5 will be a protection 
against his losing very much if the paper loses 
any more value. If a paper dollar is worth, the 
day after he sells the coat, only 40 cents in 
gold, then his $45 is worth only (45 X 40=) 
$18, and he has then exchanged the coat for $2 
less than its value, despite his extra charge of 
$5. If he had not made this extra charge, what 
he got in exchange for the coat would be worth 
only (40X40 cents=) $16. Then his loss 
would be $4. 

When the money used by a nation changes 
value in this way, all dealers make this extra 
charge to protect themselves against loss in case 
the paper loses any more value. They sell their 
wares for as much paper, money as will buy, 
that day, the gold which the wares are worth, 
plus something more as an insurance against 
loss by the depreciation of the paper. The 
wholesale dealer charges this increased price to 
the retailer ; the retailer charges it, plus his own 
increased price, to the consumer. The con- 
sumer, therefore, finally pays all these extra 

80 



A PRIMER OF POLITICAL ECONOMY 

charges, all of which he would escape if the 
currency used were gold, or silver or paper, 
both convertible into gold at par. Poor people 
usually buy their goods of the last of a long 
line of wholesale and retail dealers. Each one 
of the line has charged this extra price. The 
poor, therefore, suffer most, in this as in other 
ways, from the use of inconvertible paper 
money. 

Such money has a large (sham) value in 
small space and weight, but if the chance of its 
being some time redeemed in specie ceases to 
exist, then its market value falls to the level of 
its intrinsic value (see explanation of Prop. 
XXVIII), and every note, whether for one or 
one thousand dollars, is worth the price of old 
paper that can be used to make new paper — 
nothing more. Inconvertible paper money is 
very unsteady in value. The greenback dollar 
varied in value all the way from 95 to 35 cents 
in gold, until the United States began to redeem 
it in gold at par. Such money is not very dura- 
ble. The stamps on it soon wear away. It can 
be counterfeited with comparative ease. It cir- 
culates as money only within the country of the 
government issuing it. When a bank issues it, 

81 



A PRIMER OF POLITICAL ECONOMY 

it circulates only near that bank. It forms no 
part of the world's money. 

Therefore, paper money, not convertible into 
specie at par, is an evil. 

PROPOSITION XXXVI 
The worse currency drives out the better 

When there are two legal sorts of currency 
in a country, the worse will drive out the better. 
Gold and greenbacks were both legal mediums 
of exchange in this country, from 1862 on, but 
the greenbacks were not worth par in gold until 
1879. Until then, they were the worse cur- 
rency, and they drove out the gold. 

Suppose a shoe manufacturer borrowed $100 
in gold when we had a gold currency, and had 
to repay the loan in 1875, when a gold dollar 
was worth $1.12 in greenbacks. His shoes sell 
for $2 a pair in gold, and about $2.75 a pair in 
greenbacks. If he paid the debt in gold, he 
would have to part with fifty pairs of shoes. 
If he paid it in greenbacks, he would have to 
part with only forty- four pairs. It was there- 
fore cheaper for him to use greenbacks. The 
creditor lost by it, though, because he lent $100 

82 



A PRIMER OF POLITICAL ECONOMY 

in gold and he got back $100 in greenbacks, 
which were worth only about $89 in gold. It 
is one bad result of a double currency that a 
debtor can thus defraud his creditor. 

When a debtor has to pay his debt, and can 
pay it in a bad and cheap or a good and costly 
currency, he will use the cheap currency. Every 
debtor will do this. There will, therefore, be 
no demand for the good currency, and it will 
disappear from the market. 

Therefore, the worse currency drives out the 
better. 

PROPOSITION XXXVII 

Credit is not capital 

Capital (Def. 4) is wealth saved and used in 
production. Credit has not been saved. When 
a bank or a government issues a note for $100, 
no capital has been created. The note, if con- 
vertible into specie, represents specie and is as 
good as specie, but issuing it has not created the 
specie it represents. That existed already. Is- 
suing the note has merely changed the owner 
of the specie. A has $100 in gold. He gives 
B, in exchange for food, clothing, etc., his 
promise to pay $100, The total capital of the 

83 



A PRIMER OF POLITICAL ECONOMY 

two is still only $100, plus the food and clothing 
unconsumed, but now B owns the $100 instead 
of A. B can claim it from A at any time. 
There has therefore been no creation of capi- 
tal by creating credit. 

Credit is not in itself capital. It is a lease of 
capital which enables a man to get the use of 
capital for a time, just as a lease written on a 
piece of paper, which is not land, enables its 
holder to occupy and use land, for the time. 

The creation of credit transfers the use of 
capital. A has $100. He lends it to B, tak- 
ing in return B's written promise to pay him 
(A) $100, with interest, at some future time. 
Thus A's giving B credit has transferred the 
use of A's money to B. It has not created any 
more money or wealth. But if credit were capi- 
tal, the world's wealth would now be in- 
creased by $100, since all capital is wealth. 

If there were no credit, there could be no 
lenders, and therefore no borrowers. Only 
those who could use capital for their own pur- 
poses would accumulate it at all. Credit, by 
transferring the use of wealth from those who 
would not use the wealth productively to those 
who will, makes the wealth capital. But it is 

84 



A PRIMER OF POLITICAL ECONOMY 

not itself capital, because it is not wealth that 
has been saved. 

Therefore, credit is not capital. 

PROPOSITION XXXVIII 

A commercial crisis is caused by the destruction, 
that is, the unproductive consumption, of wealth 

There are times when credit ceases; when 
prices suddenly fall; when merchants fail; 
when manufactures slacken; when wages de- 
cline and great numbers of laborers are thrown 
out of employment ; and when bankers cease to 
loan money, and are unable to pay back the 
deposits which have been made at their banks. 
When this state of things exists, there is said 
to be a commercial crisis. 

Let us see what causes all this. It is at the 
banks that a crisis first shows itself. We will 
best understand what a crisis is, therefore, by 
beginning to study it at the banks. 

Banks gather up the savings which are made 
by one class of the community and loan them to 
another class to be employed in the production 
of wealth. Every $1,000 loaned by the sav- 
ings banks is said to give employment, on an 
average, to one laborer. Let us suppose that 

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A PRIMER OF POLITICAL ECONOMY 

one thousand persons each deposit $1,000 in a 
bank for safe-keeping. If it is left on deposit 
long enough, the bank will pay the owner 3 or 
4 per cent, interest on it, but the bank must 
make more than 3 or 4 per cent, by loaning the 
deposit. If it did not, it would lose money. 
It therefore loans its deposits at 6 per cent, or 
more to persons employed in the production of 
wealth. Its profit consists in the difference 
between the interest it pays and the interest it 
gets. 

Let us suppose that the $1,000,000 deposited 
by the thousand persons is loaned out to build a 
railroad. Then this amount of capital takes 
the form of a railroad. If the railroad was 
wanted, the company that built it will be repaid 
by the receipts from freights, fares, etc. The 
company can therefore repay the banker, and 
the banker his depositors. But if the railroad 
has been built where it was not needed, so that 
no use, or very little use, is made of it after it 
is built, then the company will receive nothing 
or almost nothing from freights, fares, etc. It 
will therefore be unable to pay the banker, and 
the banker therefore cannot pay his depositors. 

What is the consequence of this? 

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A PRIMER OF POLITICAL ECONOMY 

The depositors run to the bank. The bank 
cannot pay them. It closes. The railroad com- 
pany can get no more loans. It has to stop 
work. The labor employed in taking care of 
the part of the road already built, and in build- 
ing the other part is thrown out of work. There 
is now less demand for rails, locomotives, cars, 
etc. The manufacturers of these things dismiss 
some of their hands and slacken work. But if 
less railroad iron is wanted, fewer men will be 
wanted to work the iron mines and to carry the 
ore from the mines to the places where it is 
made into rails, locomotives, car wheels, etc. 
This has all happened because a railroad was 
produced which was not needed, that is, because 
$1,000,000 of deposits was consumed unpro- 
ductively, or destroyed; for unproductive con- 
sumption and destruction are the same. 

The unproductive consumption of the $1,- 
000,000 has had several bad effects : 

( 1 ) It caused the bank to close ; 

( 2 ) It made the depositors lose their money ; 

(3) It threw railroad employees out of 
work ; 

(4) It stopped the iron works where rail- 
road iron was being manufactured; 

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A PRIMER OF POLITICAL ECONOMY 

(5) It diminished the demand for iron at 
the mines; 

(6) It threw out of employment a number 
of miners, ore-carriers and iron-workers; 

(7) It slackened all kinds of business, for 
the laborers thrown out of employment could 
not buy of the grocer, dry goods merchant, 
shoemaker, etc., as before; 

(8) Consequently, the retail grocer, shoe- 
maker, etc., were unable to buy of the wholesale 
dealers in groceries, boots and shoes, etc. ; 

(9) Therefore, the wholesale dealers 
stopped buying, and the demand for all these 
articles was less, and consequently the produc- 
tion of them diminished. 

All these evils, then, felt throughout the 
whole commercial body, have resulted from the 
destruction of the $1,000,000 worth of capital. 
The dollars themselves have not been consumed, 
but the food and clothing of the laborers they 
hired, and the wood, rails, bridges, rolling- 
stock, etc., which they bought have all been 
spent without producing wealth. Thus, al- 
though the dollars themselves are still in 
existence, $1,000,000 worth of capital has been 
destroyed. 



A PRIMER OF POLITICAL ECONOMY 

Now we have only to suppose that a great 
many millions have been consumed unproduc- 
tively in a great many other ways in order to 
account for all these effects on a greater scale. 
But when these things happen on a great scale, 
we have a commercial crisis. 

Therefore, a commercial crisis is caused by 
the destruction, that is, the unproductive con- 
sumption, of wealth. 

PROPOSITION XXXIX 

The effects of a commercial crisis can be removed 
only by the production of wealth 

The destruction of wealth (Prop. XXXVIII) 
causes a crisis ; the production of wealth, there- 
fore, by removing the cause, must remove the 
effect — that is, the crisis. 

As wealth is produced, it is deposited in 
banks for investment, or it is used in produc- 
tion without being first put in the banks. Then 
the laborers thrown out of work by the crisis 
are employed again. They are therefore able 
to buy again of the grocer, baker, shoemaker, 
etc. The latter buy fresh stocks of goods from 
the wholesale dealers. The wholesalers in turn 
give orders to the producers. 

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A PRIMER OF POLITICAL ECONOMY 

Thus business revives and times are said to 
be good. Wealth is produced and the effects of 
the crisis disappear. 

Therefore, the effects of a commercial crisis 
can be removed only by the production of 
wealth. 



Definition 14. A tax is a sum of money col- 
lected by a government from persons or prop-* 
erty within its dominions. 

Definition 15. Duties are taxes on imported 
goods, that is, on goods brought from other 
countries. 

Definition 16. A tariff is a law fixing duties. 

There are two kinds of tariffs — revenue and 
protective. 

A revenue tariff is one the only object of which 
is to raise money for the needs of the govern- 
ment. A country which has a revenue tariff is 
said to enjoy " free trade." Its government does 
not interfere with its trade with foreign countries 
except for the sake of raising needed revenue. 

A protective tariff is one which fixes duties in 
such a way that the home manufacturer can 
afford to produce and sell a commodity more 
cheaply than it can be sold after it has been im- 
ported, and the duty on it has been paid. The 
home manufacturer is then said to be "pro- 
tected" against the competition of his foreign 
rivals. 

90 



A PRIMER OF POLITICAL ECONOMY 

A revenue tariff is for the benefit of the gov- 
ernment. A protective tariff, while it yields some 
revenue to the government, is mainly for the 
benefit of the manufacturers. 



PROPOSITION XL 
A tariff should be for revenue alone 

A protective tariff is an injustice and a hard- 
ship. An illustration will suffice to show what 
is meant by this. Suppose a man wants to buy 
cloth with which to make a coat. England 
manufactures some of the best cloth in the 
world. He says he will buy English cloth. It 
is better and cheaper. Now if trade were free, 
he might buy the cloth, we will say, for $i a 
yard when imported here. American cloth of 
perhaps not as good quality is selling for $1.50 
a yard. To keep him from purchasing the 
English cloth, and to compel him to buy the 
American, the government adds to the price of 
the English cloth, say 60 cents, as an extra 
duty. It is now worth $1.60, which is more 
than the buyer can afford to pay. He therefore 
buys the American cloth for $1.50. 

Now, who has been the gainer by this ? The 
American manufacturer. The buyer has lost 

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A PRIMER OF POLITICAL ECONOMY 

50 cents on each yard. And as the manufac- 
turers are few, while those who use cloth are 
many, the whole country is made to* pay out 
large sums by a protective tariff for the benefit 
of the few. This is why a protective tariff is 
an injustice and a hardship. 

There are other reasons why trade between 
different countries should be free. 

When it is free, each country produces those 
things for which it is best adapted, that is, which 
it can produce cheapest and best. France can 
produce very good and very cheap silk. Eng- 
land is not adapted to the cultivation of the 
mulberry trees on which the silkworms feed, 
and therefore cannot well produce good silk. 
But it can produce a very good and very cheap 
cutlery. It is best then that it should produce 
good cutlery and exchange it for good French 
silk. If each country had to produce its own 
silk and its own cutlery, the result would be 
that France would have some very poor but 
very dear cutlery, while England would have 
some very poor but very dear silk. Both coun- 
tries would suffer, and only the few engaged in 
the manufacture of the poor but " protected' ' 
articles would gain. 

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A PRIMER OF POLITICAL ECONOMY 

The government has no right to tax one man 
to benefit another. It should treat all men alike. 
A man has a right to buy wherever he can buy 
best and cheapest ; but this right he cannot have 
when trade is not free. 

It is claimed that a protective tariff benefits 
a country by stimulating its manufactures, and 
so making it independent of other countries, 
and by securing employment for its workpeople. 

But there is no more reason why a country 
should buy nothing from other countries than 
there is why a man should buy nothing of other 
men. 

Suppose a man had to produce and manu- 
facture his own food, clothing, house, shoes, 
books, church, and everything else. He would 
not produce nearly as much wealth in a year 
(Prop. X) as if he should make one thing, 
shoes for instance, and sell them for money, and 
then sell the money for his food, clothing, 
house rent, books, pew, etc. So a country, by 
manufacturing the things which it can manu- 
facture best, produces more wealth than if it 
were to try to manufacture everything. It can 
then exchange its surplus wealth for the special 
products of other countries, just as the shoe- 

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A PRIMER OF POLITICAL ECONOMY 

maker exchanges his surplus shoes for the 
products of the tailor, farmer, etc. 

A protective tariff does not increase the num- 
ber of workmen employed. It does not increase 
the capital in a country, and it therefore cannot 
(Prop. V) increase the amount of labor em- 
ployed. It is true that if the " protected " com- 
modities were produced abroad and imported, 
as some of them would be under a revenue 
tariff, they would not be produced at home, at 
least in such quantities as they are when " pro- 
tected." At least part of the labor now employed 
in producing them at home would therefore be 
no longer employed in that way. It would, 
however, be employed in another way. For, in 
order to pay for the goods imported, we would 
have to export other goods. Therefore there 
would have to be a greater production of the 
latter. The labor hitherto employed in pro- 
ducing at home the goods now imported from 
abroad, would now be employed in producing 
the goods exported to pay for these imports. 

A high tariff " protects " only the manufac- 
turers. The higher profits they make must be 
paid, of course, by the men not engaged in 
manufactures — the ministers, lawyers, teach- 

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A PRIMER OF POLITICAL ECONOMY 

ers, doctors, journalists, grocers, farmers, 
bakers, laborers, etc., etc. The number of per- 
sons, employers and employees, engaged in 
every sort of manufacture in this country in 
19 1 o was 7,678,578, i.e., less than 8,000,000. 
The rural population was 49,348,883, nearly 
50,000,000. The capital invested in manufac- 
tures was less than $20,000,000,000. That 
invested in farms was more than $40,000,- 
000,000. The total population was over 90,- 
000,000. Thus the many are taxed by a pro- 
tective tariff for the benefit of the few. 

Moreover, the persons engaged in manufac- 
tures all pay higher prices for the manufactured 
articles they consume than they would were 
there no protective tariff. Thus the few who 
gain directly also lose indirectly. 

Again, the manufacturers of the protected 
commodities get a higher profit than they other- 
wise would on what they sell in the home mar- 
ket, but they are restricted to this market by a 
protective tariff. Such a tariff shuts them out 
from the markets of the world. American axe 
manufacturers, for instance, used to sell their 
wares over the whole world. Now they cannot 
compete with the English manufacturers. For 

95 



A PRIMER OF POLITICAL ECONOMY 

a high tariff has made some of their raw mate- 
rials, their machinery, and their labor cost so 
much that they can no longer produce good axes 
as cheaply as the English can. They are there- 
fore undersold in all foreign countries, and can 
sell little outside of the United States. Their 
higher profits in the home market are often 
much more than counterbalanced by their loss 
of the profits they could make, were there only 
a revenue tariff, by foreign trade. 

Suppose the student, when he next sits down 
to breakfast, should think how much has been 
added to the cost of the things in the room and 
on the table by the present protective tariff. 
The table on which the breakfast is served is 
taxed 15 per cent., the table-cloth 25 per cent., 
the dishes, plates, cups and saucers, 35 per cent., 
the plated spoons 50 per cent., the knives and 
forks 30 per cent., the plated coffee pot 50 per 
cent., the china tea-pot 55 per cent., the carpet 
on the dining-room floor 20 to 30 per cent, the 
stove 10 per cent., the wall paper 25 per cent., 
the glass in the windows % of a cent per 
pound, and the chairs 15 per cent.* If there 
were a revenue tariff, all of these articles could 

* These figures are taken from the tariff of 1913. 
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A PRIMER OF POLITICAL ECONOMY 

have been imported and sold at prices much less 
than we have to pay now. The American capi- 
tal and labor now employed in producing some 
of them would then be used in the production 
of the wealth sent abroad in exchange for them. 
Thus, as much capital and labor would be em- 
ployed and we should have to pay less for many 
necessaries. 

A protective tariff tends to keep foreign 
articles out of the market. Americans produce 
similar articles and sell them at rates just 
below the cost of the foreign product, plus the 
duty. Thus a protective tariff yields the gov- 
ernment much less money than a revenue tariff 
would. It merely gives high profits to a few, 
and makes the many pay much more for the 
necessaries of life than they otherwise would. 

Therefore, a tariff should be for revenue 
alone. 

PROPOSITION XLI 
The best tax is the Single Tax 

The Single Tax is so named because, if it is 
adopted, all other taxes can be abolished. It 
is a tax upon land alone, not upon buildings or 
other improvements upon land. The value of 

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land is created by the number of people who live 
on and about it. This value, created by the 
people, rightfully belongs to the people. If all 
land rent is paid into the public purse, the peo- 
ple simply take what they have themselves 
created and what therefore belongs to them. 

The whole island of Manhattan, which is now 
the heart of New York City, was bought, May 
6, 1626, for $24. It is now (191 2) worth 
about $5,000,000,000 (the assessed value), 
without counting the buildings upon it. New 
York City assesses land and buildings sepa- 
rately. It is no better land than it was in 
1626, but then there was but a handful of men 
and women upon it, and now millions of men 
and women pass at least part of every day upon 
it. Because they do this, it is worth 200,000,- 
000 times as much as it was 300 years ago. 
If they all went away and no other men and 
women took their place, the island would not 
be worth as much as it was in 1626. 

If all taxation were levied upon land, nobody 
could afford to keep land idle. Every land- 
owner would have to use the land he owned in 
order to get enough money out of it to pay the 
tax upon it. Land, outside of parks, etc., can 

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be used only in two ways, for buildings, rail- 
roads, etc., and for growing food. So if all 
land were used, there would be more buildings, 
which would make rents lower, and more food, 
which would cut down the high cost of living. 
Again, land can be used only by employing 
labor. So if all land were used, there would 
be a great plenty of work to do. Everybody 
who was willing to work would get good wages. 
There would be no involuntary poverty. In a 
world without involuntary poverty there would 
be far less suffering and sin than there is now. 
When heavy taxes are levied upon things 
produced by labor, such as houses, coats, etc., 
the production of houses and coats is checked. 
Less labor is employed, therefore, to make 
them. This makes men who might be pro- 
ducing houses and coats try to get other work. 
Then there are more men seeking work than 
there are opportunities to work, so wages fall. 
But when land is taxed, this does not stop the 
production of land. It has all been produced 
already. No tax can lessen the amount of it. 
The tax merely drives land into use. That 
offers new opportunities for labor, so wages 
rise while the cost of living falls. 

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The Single Tax has been partly put into 
practice in the most important two empires of 
the world, the British and the German. It is 
being studied all over the world. It is the 
coming tax system. Its progress has been slow 
in the United States. This is partly because it 
is not understood. American farmers are apt 
to think they would have to pay the state more 
under the Single Tax than they do now. In 
fact, they would pay less. When they find this 
out we shall have the Single Tax. 

The state would not take any part of the 
rents of buildings, but it would take all of the 
rent of land that it needed and enough of it to 
make it unprofitable not to use land. Henry 
George, whose wonderful book, Progress and 
Poverty, first published in 1880, began the bat- 
tle for the Single Tax, thought the state should 
take at once, the whole rent of land. That, 
however, is unjust, because for hundreds of 
years our laws have made land a subject of sale 
and of purchase. We ought to let the present 
landowners keep what they have got, but the 
state should take for the public welfare all the 
increase in the rental value of land from now 
on. There should be no other taxes. 

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The Single Tax is simple, easy to compre- 
hend, easy to calculate, easy to collect. It is 
certain. It cannot be evaded as most taxes 
can. It encourages growth. Other tax sys- 
tems check growth. It reduces rents and food- 
cost. It increases wages. It takes for the pub- 
lic benefit only what the public creates, t. e., 
a rise in land-values. It will prevent involun- 
tary poverty. 

Therefore, the best tax is the Single Tax. 



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